When Financial Services Minister Stephen Jones delivered the government’s response to the QAR in June, the introduction of a “good advice” standard was not included, however, under the first stream of changes, the government said it would eliminate the safe harbour steps from the best interests duty.
Speaking at the SMSF Association Technical Summit on the Gold Coast, Ms Levy said the safe harbour has muddled the best interests duty under the Corporations Act and its removal is not enough to set things straight.
“You’ve got a best interest duty in the Corporations Act at the moment, which was meant to be fiduciary-like duty, and you think, ‘Well, what is that a fiduciary duty to act in the best interests of my client?’ It’s about not having a conflict, not getting a personal profit from the relationship that hasn’t been consented to, it’s about your purpose,” Ms Levy said.
“Instead, what we’ve got is a best interest duty with a safe harbour that says you will discharge your best interest duty if you undertake all of these inquiries: it’s a duty of care. And the courts have said that.
“So, what you’ve got is you’ve got this muddling in the law in the Corporations Act of what best interest duty is.”
Ms Levy explained her concern is that just removing the safe harbour will not change the way the law is interpreted by the courts.
“You can’t come along and look at what a government does after the fact. I think it’s always going to be infected by that whole safe harbour step when it’s being interpreted,” she said.
“I think if you want to turn it into a real best interest duty like a solicitor has, then it needs to be replaced, it could use the same words, but it needs to actually be replaced so then it has an explanatory memorandum that says that’s what it’s meant to do. It’s meant to change the meaning.”
Looking at whether non-relevant providers should be included under the best interest duty or meet a similar standard, Ms Levy argued against imposing this on a financial institution employee.
“A professional financial adviser has, under the general law, a fiduciary duty, a bank teller does not have a fiduciary duty, and in my view, it is inappropriate to try to impose one on them,” she said.
“If my recommendation that more people will be able to give advice is accepted, then it makes sense that the professionals have a fiduciary duty, the other people who are doing it under the direction of their employer don’t. They do have a fiduciary duty to their employer, it’s not to the client.
“So, to make somebody personally responsible to the client, when they’re actually doing what they’re directed to do by their employer, doesn’t make sense and it’s unfair. The person who is responsible is the employer and they will have all of the liability in my world.”
Ms Levy added that this is the key difference between the two segments, with professional advisers having a greater ability to exercise their own discretion.
“Being a professional adviser is so different to being an employee of a financial institution,” Ms Levy said.
“I know … you can be a financial adviser professional employed by [a financial institution], but I think they occupy different roles and positions; this person can exercise judgement and discretion, this person can’t. And that, in my view is where that line should sit.”
What isn’t being discussed is where all of these newly created QAR “intrafund advisers” will be located. Give it time & we will have 15,000 hotline team “advisers” based in the Philippines, providing super fund members an experience similar to the Qantas & Telstra phone hotline. Won’t that be exciting….
very good point – just trust the Insto’s and ISF’s to just employ locally qualified and skilled individuals? or go for the very cheapest option legally allowed…
They still need to do a 15 page RoA though ? Right ? Of – and state their fees in a box towards the end – say page 15.
And all the Advice will be with AI !!!
The Safe Harbour test provides a robust framework and process to follow and be guided by for all advisers, AFSL holders and consumers to be able to understand. Mr Jones has recognized we should be creating an industry that is good for consumers and in my opinion safe harbour as a process not as a means to remove liability is a good advice process.
“I know … you can be a financial adviser professional employed by [a financial institution], but I think they occupy different roles and positions; this person can exercise judgement and discretion, this person can’t. And that, in my view is where that line should sit.”
I wonder if ML really believes this.
Why doesn’t she stop and ask herself why an adviser working for a financial institution can’t recommend clients invest in products outside their APL? If a super fund like AustralianSuper is constantly providing good risk related returns why would an adviser not be able to recommend them. Alternatively, why can’t an adviser with AWARE recommend products outside their own company.
Why doesn’t she stop and ask herself why AMP advisers could only recommend other insurers after AMP sold of their insurance to Resolution Life.
It all comes down to conflict of interest. Advisers working for product providers have a conflict of interest that goes way beyond advisers wanting to act in their clients best interest.
“Being a professional adviser is so different to being an employee of a financial institution,” Ms Levy said (NSS). Then why allow the Instos and ISF’s to provide advice? Back to vertical integration we go, and that illustrates just how conflicted and poor financial services legislation has been over the last 20 years. Not fit for purpose and goes against true Professionalism. Just stop meddling with it all.
Gosh, if Levy has her way, consumers will be fleeced by the big institutions. It’s almost like the Royal Commission and the GFC didn’t happen.
Clear as mud.
Irrelevant guff, Levy made a great contribution, but all of this pontification is useless until legislation is written. Based on Jones’ complacency and further delays, probably will never happen.