The Australian Securities and Investments Commission (ASIC) has admitted that it got fiduciary duty wrong and does not intend to implement it as part of the Future of Financial Advice (FOFA) reforms, according to Professor Justin O’Brien of the Faculty of Law, University of NSW.
O’Brien spoke at the Self-Managed Super Fund Professionals’ Association of Australia conference in Brisbane. Referring to the ASIC Summer School held in Sydney this week, O’Brien said for the first time ASIC had publicly accepted that its approach to the FOFA reforms “has been suboptimal".
What ASIC made clear was that the imposition of fiduciary-like duties “was in actual fact unfortunate short-hand and that they didn’t really mean it”, O’Brien said. Rather, what was likely to emerge from FOFA would not be a statutory fiduciary duty, but ‘statutory best interest’, he said, adding that the ‘best interests’ standards would be highly specified in terms of what advisers can and should do.
A major problem for the Government and ASIC was actually implementing a statutory fiduciary duty, O’Brien said. One stumbling block was that the Corporations Act allowed for conflicts of interest as long as they were managed, whereas a true fiduciary duty did not, he explained. He said an added problem for ASIC was weighing the expectations of the public, who wanted rigorous control, against what could practically be implemented.
O’Brien argued that even should no statutory fiduciary duty be implemented, the industry still had to demonstrate that trust in the industry was warranted.
“And that means that professional organisations must come to the fore now with the development of professional standards that far exceed the minimum professional standards,” he said, adding that the arguments about fiduciary duty in the financial planning space “are basically over”.
“You have to utilise this as an opportunity to demonstrate that you do put the interests of clients first, and that is demonstrated by raising the bar significantly,” said O’Brien.
Speaking at a session soon afterwards, AMP director of financial planning Steve Helmich (pictured) said there was a lot of uncertainty among financial advisers about fiduciary duty. While no one really knew what it was, they knew they had to fulfil it, he said.
Helmich said he supported a “fiduciary-like” standard because he felt it would help the profession. However, he argued that it already existed for advisers that were doing their jobs properly.
“If you put your clients’ interests before your own then you are fulfilling a fiduciary duty,” he said.
Referring to court cases in the UK, Helmich said while there was nothing stipulating a fiduciary duty requirement in regulation, it was upheld in common law nonetheless. Advisers needed to remember that clients assumed advisers acted in their best interests, he said, adding that therefore a fiduciary duty should exist for all advisers, including intra-fund advisers.
