The Treasury’s two ‘best interest’ duty options, offered up to the Future of Financial Advice Peak Consultation Group for discussion, have been met with a mixed response.
Treasury proposed two ‘best interests of the client’ options last month. The first option was: “To act in the best interests of the client and, if there is a conflict between the client’s interest and the interest of the person providing personal advice or the providing entity, to give priority to the client’s interest”; while the second option was: “To have proper regard to, and act in accordance with, the interest of the client and place the interests of the client above their own interests and the interest of the providing entity.”
Chief executive of the Financial Services Council (FSC), John Brogden (pictured), explained that the first option was outcomes-based, while the second option was process-based. He said the FSC preferred the second option because it meant that advisers as well as clients were protected by standard steps of practice, whereas the first option meant that what was in the best interests of the client was subjective and harder to assess.
Chief executive of The Trust Company John Atkin said the industry needed to adopt a fiduciary duty obligation if it wanted to be seen as a profession. He said the first option, however, was the less compromised of the two, while the second option confused the issue because ‘best interests’ was not about the quality of advice.
“Fiduciary obligation is focused on avoiding conflicts of interest,” he explained. “The second option focuses more on the premise that if you’ve given them the correct advice, then it doesn’t matter – the adviser will always be at risk of being compromised because of their personal interest.”
Financial Planning Association (FPA) general manager of policy and government relations Dante de Gori said the FPA was reserving its judgement, because no detail had been given whether a best interest requirement would be imposed on licensees. However, he said the FPA was conscious of the direction going towards a duty of ‘best advice’ as opposed to a duty of ‘conduct’.
De Gori said the original intention was that advisers should always be placing the interest of the client ahead of their own. Whether the adviser adhered to a reasonable basis for advice was already covered by other legislation and should not be the focus, he said.
The Association of Financial Advisers (AFA) government and policy chair, Christina Kalantzis, said the AFA would not comment on any particulars but it wanted to ensure that any best interests duty took into account the role of the licensee, its policies and procedures, as well as the relationship between the adviser and the client.
The AFA also wanted to ensure that the concept of ‘best interest’ was principles-based and reflected what was already embodied in the current legal and regulatory framework, she said.
