The general ‘catch-all’ provision of the best interests duty may extend to an adviser's obligation to consider a client's personal circumstances, a compliance consultant has warned.
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.
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