GFC spurs increased paternalism in legislation
Scaled and scoped advice has received undue focus under the Future of Financial Advice (FOFA) legislation, and is a sign of increasing levels of paternalism in legislation, according to legal experts.
Speaking at the Financial Services Council Life Insurance Conference 2014, partner at Herbert Smith Freehills Michael Vrisakis said the FOFA legislation was "undoubtedly a reaction against some of the worst incidents we've seen during the global financial crisis (GFC)".
"The reason there's been all this consternation around scaled advice again goes back to the seed of paternalism; that an adviser could narrowly corral a client into too narrow a scope of advice for the adviser's own purposes, whether that be for a commission or whether that be for a particular service proposition," Vrisakis said.
"And I think the criticism of that which manifested itself in the present [is] that if you allowed scope or scaled advice you really are allowing a further erosion of protection for the client."
But partner at Minter Eillison, Richard Batten, said the reality is that all advice will have to be scoped because few advisers will have the ability to advise on every single type of investment.
"So there's a little bit of mischief-making in some of this discussion, frankly."
Vrisakis said the duty to give appropriate advice still existed regardless of the scope of the subject matter. The adviser will have to warn the client that if they want narrow advice, there could be consequences that could follow.
He argued that if a client comes in to see the planner for narrow advice and the adviser is only allowed to give comprehensive advice, it could end up costing $4000 for the client instead of just $400.
Batten finished off warning: "Be careful what you wish for."
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