New legal advice obtained by Industry Super Australia (ISA) has stated that the proposed Future of Financial Advice (FOFA) changes are inconsistent with the nature of a ‘best interests duty' and put planners at further risk of litigation.
The law firm Arnold Bloch Leibler, frequently retained by the ISA, claims the proposed amendments would significantly reduce the protection that the duty affords to clients of financial advisers.
The firm said the two sets of changes to the best interests duty — the removal of the so-called ‘catch-all' and allowing advisers and clients to agree on the scope of advice — would be detrimental to all parties involved.
Financial planners, according to Arnold Bloch Leibler, would be able to satisfy the best interests duty without actually acting in the best interests of the client.
"[The catch-all would] mean that financial advisers could comply with the best interests duty without having to exercise their own judgement, in the client's particular circumstances, to consider whether any further steps are warranted," the legal advice states.
"This would likely reduce the overall quality of financial advice given in Australia, with advisers focused on carrying out the remaining steps in the safe harbour as efficiently as possible — in other words, going through the motions and reducing the best interests duty to a mechanical checklist."
Allowing advisers and clients to agree on the scope of advice would be "inherently problematic", the law firm states, adding that the two parties do not have the same level of knowledge or understanding of what they are — or should be — agreeing to, or its consequences.
"Never before has the law allowed an adviser to avoid responsibility for ensuring that the scope of advice is consistent with a client's needs and circumstances," said ISA deputy chief executive officer, Robbie Campo.
"This proposed change would be open to significant abuse and could be used, for instance, to get a client to agree to receive advice which ignores important relevant factors (such as their existing debt levels) or only considers products that pay commissions to an adviser."
