Speaking at the Lifespan national conference in Sydney last week, Catalyst Compliance director Peter Cashel suggested the ‘catch-all’ provision reintroduced by the Senate’s disallowance motion could potentially cause compliance issues.
In section 961B(2)(g) of the Corporations Act, advisers are required to show they have “taken any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client’s relevant circumstances”.
Mr Cashel said this general clause means advisers need to consider a wide range of circumstances and warned it would be “the one that can catch you out”.
“It’s the thing lawyers will be hanging their hat on,” he said.
In particular, he suggested this clause means advisers need to take into account a client’s debt levels.
“It can mean if a client has debt, you actually have to look at that debt. Is it better for the client to pay off their debt or not?” he said.
However, he warned this did not necessarily mean advisers were obliged to favour debt reduction.
“Depending on what they want to do, today it might be appropriate that they don’t pay off their debt, because their mortgage is maybe four per cent but the markets are returning seven per cent,” he said.
To fulfil their obligations under the ‘catch-all’, he suggested advisers would need to undertake strategy research looking at current market conditions, competing strategies and any other relevant information.
Moreover, he said advisers needed to document all the research they undertook.
“Here’s the tip – keep your documentation. Be able to prove you acted in the client’s best interests,” he said.
Phillip
CORRECT
we offer strategy, products are tools to make the strategy work. Clients do happily pay through good and bad times if you do your job well-communication rings a bell.
There’s a clue in your name – advisers – and that is to offer ADVICE rather than instructions. The job as advisers is to explain complex concepts simply and to then show how a client MAY use certain strategies to achieve THEIR stated objectives, if they wish to do so. Cheque please…
If you’re any good at that (and if the client is capable of understanding) then the client will (after paying for your advice) be then able to INSTRUCT you (just as they do with lawyers) to proceed to implement on their instructions. BUT the catch is that you can’t sell anyone’s product that way. That’s why we independents charge fees for service whether the client proceeds or not – and it’s why the vertical integration model can’t work.
BTW – they WILL and DO happily pay fair fees for sound advice, but are wary of paying to be sold a product.
Yep, and the one item that was blindingly obvious to all that weren’t under a rock was that catch all provision would remain in the legislation. Given the amount of commentary around it I have wrongly assumed it was well known to all.
[quote name=”Pugsly”]Seems Peter Cashel and Lifespan have just caught on to what most have been stating since FOFAs inception and the catch all provision.[/quote]
Pugsly,
You may recall that when in opposition the Liberal party said they would remove the ‘catch all’ requirement. When liberals were elected ASIC took a ‘no-action’ approach ie, no action if you didn’t comply with the requirement.
Subsequently the Liberals amendments were rejected by the Senate ie, the catch-all was now law. We all knew about it but it was not until December 2014 it was a requirement to ‘do anything else necessary'(the catch all).
Steve, is it the industry thats a joke? Or the illinformed poloiticians that set the legislation. Im betting you are a dedicated professional who takes his work very seriously and does everything he can to act in the best interests of his client. Does not sound like a joke to me! Bill Shorten, now there’s a joke!! I agree with everything you say right up to where you call all of us a joke, or perhaps I have misinterpreted your statement? A bit more of Little Britain? :)[/quote]
….Les, if I answered thee on a Monday I’d say Yeeees. If I answered thee on a Tuesday I’d say……Yeeeees. If I answered thee on a Wednesday, I’d say……Yeaeeeees. Overall I can’t answer thee at all without first completing this 20 page fact find and multi question SH Checklist to then issue you with a 40 page SOA that no one wants to read nor complete so I can eventually say(flute playing) ……..Yeeeeeees.
Ben
If we continue to complete due diligence and offer holistic advice – no issues. If scaled advice and you acknowledge other issues and the client still agrees to scaled advice, it becomes a legal matter BUT at the end of the day the client controls their life and the advice offered. It then becomes hard for the legal chasers to sue if the client has signed off with full knowledge. The buck has to stop somewhere and its about time we stopped shooting blanks and had input through the professional bodies to remove this so called threat to our profession. Do you see a medico sued if a patient sues after refusing treatment knowing all consequences. NO. Lets move on to more important issues like just doing our job very well.
A lot of the FOFA provisions come out of the ASIC Report 279.One of the main criticisms from report 279 was the fact that people went for retirement advice but within their advice, debt ,Centrelink and other provisions were totally ignored. So as an adviser you may need to point to the elephant in the room. Do not ignore factors that may impact on their retirement because you do not want to be the bearer of bad news or because they actually will have no funds to invest because best interest is to repay as much debt as possible. In the end it all comes down to how well you document your discussion with the client and the limitation it places on your advice in the accompanying SoA if [b][i]they[/i][/b] decide to scope it out.
In some cases you may have to refuse to give advice. Blindly doing what the client wants without taking their best interest into consideration is where advisers will play into the hands of lawyers.
The problem we all face is that Lawyers are untouchable – they can’t be sued for their bad advice and they know it. But any Lawyer can ask a loaded question to any client, and even if the client is happy they can be made to feel as if they received bad advice. Some Lawyers are just working the system now, and trawling for anyone they can to start action against planners. The system is broken and the vast majority of planners who are honest and ethical are now tarred with the same brush as the bad nuts in our industry. Like one of the earlier comments, with the amount of disclaimers in our SoA’s clients automatically wonder about the quality of advice they’re getting. Time for ALL industry bodies to show what they’re made of plus Dealer Groups and all of us to get very vocal about they fact that we need to be allowed to HELP CLIENTS in a way that clients can afford.
Mr T you mean you don’t go to that level of detail now? What else goes into a 70+page SoA 🙂
Clients now have an unprecedented opportunity to sue us. Let’s face it, that is what the legislation was designed for. During the first interview, think to yourself. Is this a client I can trust? Will they sue me if something goes wrong? Can I afford to take the risk on this client. The world has changed. Keep your friends close, your clients even closer!
it’s geting to the point whereby, in an initial client interview you need to ask around 200 questions just to cover your own butt from a litigation point of view…….eg “Mrs Smith, is there any chance that at age 60-70 you might decide to have an IVF baby, thereby taking yourself out of the workforce for a year or two and impacting on your super accumulating?”
[quote name=”Steve”]Sounds like the restaurant owner on little Britain…… Maybe I will and maybe I won’t……… Let me answer thee via the medium of Dance!…… Yee know too much.
You can just see the law firms business development planning focusing on planners as their next 10 year boom time plan.
God help us, this industry is a JOKE![/quote]
Steve, is it the industry thats a joke? Or the illinformed poloiticians that set the legislation. Im betting you are a dedicated professional who takes his work very seriously and does everything he can to act in the best interests of his client. Does not sound like a joke to me! Bill Shorten, now there’s a joke!! I agree with everything you say right up to where you call all of us a joke, or perhaps I have misinterpreted your statement? A bit more of Little Britain? 🙂
[quote name=”GB”] Professionals are able to readily identify the limitations and consequences of “scoped advice” Product advisers (and those lacking proven technical knowledge) may lack to capacity or will to explore issues that are not incremental to the product sale. The provision of scaled advice requires highly skilled advisers.[/quote]
Im not a product adviser GB, but even I find your comment a bit elitist. There have been any amount of strategic advisers caught out by the over engineering of financial services legislation. Not through shoddy or non professional work, we have all seen these horror case studies. As I see it, and I admit that I often see things differently to my fellow ‘professionals’, financlai planners should be supportive of each other, regardless of if they are an investment or strategic adviser, and not single out others with elitist attitudes.
Sounds like the restaurant owner on little Britain…… Maybe I will and maybe I won’t……… Let me answer thee via the medium of Dance!…… Yee know too much.
You can just see the law firms business development planning focusing on planners as their next 10 year boom time plan.
God help us, this industry is a JOKE!
The “catch-all” provision is a problem for the industry and not so much the profession. Professionals are able to readily identify the limitations and consequences of “scoped advice” because they are able to identify all the relevant connections and have a discussion with the client about them. Product advisers (and those lacking proven technical knowledge) may lack to capacity or will to explore issues that are not incremental to the product sale. The provision of scaled advice requires highly skilled advisers.
Seems to me that we can limit or scale our advice to that of the scope. But, then the legislation goes on to say that we must look beyond the scope? The FPA has a lot to say when these issues are on the table but go very quiet when unworkable solutions are passed. Isnt it obvious by the amount of confusion in the industry that the new regulations are not understood by the financial planning community? In overdoing the advice in order to ‘attempt’ to stay within the law the costs to clients is going to skyrocket! The FPA puts itself out there as being the peak body for the finacial planning profession. Time to step up please!!
[quote name=”the patriot”]It is my understanding that unless we are credit authorised, we cannot comment on specific loans….so this Catch-All is a problem. Which is dominant – credit licence or FOFA Catch-all?
The sooner that provision is modified to restrict to areas of authorisation the better.[/quote]
Dear Patriot,
There is no requirement for an adviser to be a credit licensee or a credit representative to advise a client to pay out / reduce their home loan. You only need such authorisations if you ‘suggest’ a client acquire a ‘particular credit product’ from a ‘particular issuer’.
Peter Cashel.
Its getting to the stage where the ‘warnings, disclosures and disclaimers’ are so lengthy that the clients start wondering about the quality of the advice they are receiving.
OK, so seeing FOFA and this catch-all ensure we MUST provide correct advice to clients, why aren’t the SoA’s provided to us to use by our dealers groups less than 10 pages rather than 50 pages full of disclaimers and disclosures?
Nothing new on this end
We have being meeting this client obligation amongst others since date dot.
After all it is wholistic strategic financial advice….is it not?
[quote name=”the patriot”]It is my understanding that unless we are credit authorised, we cannot comment on specific loans….so this Catch-All is a problem. Which is dominant – credit licence or FOFA Catch-all?
The sooner that provision is modified to restrict to areas of authorisation the better.[/quote]
I think best a best interest SOA should mention the debt levels regardless if you have a credit licence, bit like a Dr giving you the all clear and failing to mention the discoloured mole on your back because he is not qualified in that area, we have an obligation as professionals to make clients aware…
Wouldn’t be so bad if we were a government funded charity, but we’re not…and all the research and extra analysis to try and produce a bullet proof advice file costs money and I can assure you, most the public cannot and will not pay. The industry is going nowhere except out of reach of most Australians, but is anybody listening?
I have a lot of respect for Peter Cashel, he has been in our industry for a very long time and his comments and advice have always been considered, and, given for the benefit of financial advisers. (not always the case with compliance professionals) So my message is to listen very carefully to what Peter has to say, and, act on it.
It is my understanding that unless we are credit authorised, we cannot comment on specific loans….so this Catch-All is a problem. Which is dominant – credit licence or FOFA Catch-all?
The sooner that provision is modified to restrict to areas of authorisation the better.
Next we will be checking for bald tires and the wearing of seat belts.
Fantastic, so how many infinite scenario’s are required to run, research & document to ensure that we meet the “catch all” provision?
Seems Peter Cashel and Lifespan have just caught on to what most have been stating since FOFAs inception and the catch all provision.