In her final report to the Commonwealth government, independent chair of the Quality of Advice Review (QAR) Michelle Levy has proposed the introduction of a “statutory best interests duty”.
The fifth of 13 recommendations listed in the report has advocated for a new principles-based approach to compliance as an alternative to the current prescriptive framework.
Existing best interests duty obligations require financial advisers to abide by objective standards outlined under the Corporations Amendment (Further Future of Financial Advice Measures) Act 2012.
This includes a “duty of priority” — favouring a client’s interests if conflicted with those related to the issuer of a financial product.
“From inception, it might be said that what is required by these duties is unclear,” Ms Levy observed.
Compliance with these obligations has been effectively tested by using paragraph 1.25 of the Revised Explanatory Memorandum of the Act as a “safe harbour”.
“While the best interests duty is directed to the adviser’s conduct and the safe harbour steps set out the relevant steps, the legislature says that compliance will be tested by reference to the appropriateness of the advice,” Ms Levy added.
“But even assuming this is a correct statement of the law, it is circular because the appropriate advice limb of the Corporations Act best interests duty is tested on the assumption the best interests duty itself has been satisfied.”
“The adviser must ask themselves — if I had complied with my best interests duty, would my advice be appropriate? And so advisers, ASIC, and the courts are back where they started. What does the duty to act in the best interests of the client in relation to advice require of an adviser?”
In light of a perceived lack of clarity regarding existing best interests duty obligations, Ms Levy has recommended introducing a “true fiduciary duty”, which “reflects the general law and will not include a safe harbour”.
This new obligation, which would “apply only to financial advisers”, would aim to ensure they are “motivated solely by the interests of their clients when providing advice”.
The government is yet to issue its response to the recommendations handed down by the QAR.
QAR is deeply flawed. She’s turned around and dismissed human lead advice saying you guys are rotten and broken…The question I would ask is why aren’t Super Funds providing personal advice now? The answer is not because they can’t, but they like Banks realized that in it’s current format it’s unprofitable. Michelle Levy has missed the mark by focusing on one advice channel being how super funds can offer advice and not on the existing hurdles “all” providers face equally. What is that corruption? A conflict of Interest ? A hatred ? talking to the wrong people ?
Well said.
How are consumers expected to understand when the personal advice they are getting is from someone who has to act in the best interests, or from a product manufacturers agent who has no such obligation? The uneven playing field this creates for those who can and can’t afford professional advice is ludicrous.
Very true. I understand her recommendation to allow organisations to provide advice in certain circumstances and in principle, agree with it. But only if it is backed by very clear and loud messaging from the government and regulators that the gold standard of advice is from a financial adviser. Only a financial adviser will act in their best interests, and clients should be suspicious of any other entity providing with them with advice. If they do this, then it will be positive for the financial advice profession.