AIST claims FOFA changes allow client manipulation
Allowing financial planners and their clients to 'agree’ on the scope of advice makes way for a variety of manipulation seen in cases like Storm Financial, according to the Australian Institute of Superannuation Trustees (AIST).
AIST lodged a submission on the Future of Financial Advice (FOFA) amendments, in which it opposed the removal of the 'catch-all’ provision of the best interests duty, as well as the removal of opt-in and said it did not support further carve-outs to the conflicted remuneration provisions.
However, the industry body also pointed out that the exposure draft of the Bill outlines an arrangement whereby the client and their adviser can 'agree’ on the scope of advice.
AIST said such arrangements are potentially subject to a variety of manipulation and could result in so-called 'client grooming’ seen in cases like Storm Financial. The submission pointed to the findings of the Parliamentary Joint Committee on Corporations and Financial Services.
“During hearings in 2009 into the collapse of Storm Financial, the Parliamentary Joint Committee on Corporations and Financial Services found that the process in place involved providing the one type of advice to clients,” the submission read, adding potential clients - whom this advice was not deemed appropriate for - were weeded out and the organisation and its advisers proceeded no further.
“The Report further indicates that the 'education’ process used at Storm was, in effect grooming clients towards the singular type of advice that might ordinarily only be appropriate for certain clients,” AIST said.
“Although the Committee stopped short of making such an explicit recommendation, the Committee received recommendations around stress-testing a client to ensure that commitments such as personal debt can be serviced.”
In the event that advisers and clients 'agree’ on the scope of advice, commitments such as debt servicing might not even be discussed and, as such, AIST said it cannot support the measure.
The industry body also said the amendments to 961B(2)(a) of the Corporations Act, which would remove the advisers’ requirement to ask any questions outside those that are explicitly relevant to the agreed scope of advice, can lead to an increase in poor advice.
“AIST recommends that no changes be made to accommodate a reduced scope of investigation of a client’s circumstances.”
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