There is some concern in the industry about the language used by the Australian Securities and Investments Commission (ASIC) in its consultation papers on the delivery of financial advice.
Consultation Paper 182 (CP182), which discusses the best interests duty and contains a draft update to Regulatory Guide 175, contains language that "makes the risk-averse parts of the industry quite nervous", according to Minter Ellison partner Richard Batten.
CP182 states that "the best interests duty and related obligations are not intended to require advice providers to provide perfect advice to each client".
But to say something doesn't have to be 'perfect' suggests it has to be 'almost perfect', according to Batten.
"Not being held to the standard of 'perfect' is a good thing, but to be held to the standard of 'almost perfect' - if that's the implication - is a bit of a worry. Not many people would hold themselves out as being 'almost perfect'," said Batten.
The consultation paper also contains "results orientated" language that appears to suggest that planners will be judged on the outcome of their advice, rather than the facts available to them at the time of its delivery, said Batten.
He conceded that practically, the regulator pays attention to outcomes to decide "whether or not there is something to look at".
"But in the theoretical world - when you're trying to analyse whether or not an adviser's done the right thing or not at the time they gave the advice - you should have no regard to the output," Batten said.
The draft regulatory guide also includes an example involving a client with surplus income who does not want to receive advice with a limited scope. ASIC states:
"We are more likely to consider that the best interests duty has been complied with if there is evidence of non-product-specific strategies being considered by the advice provider, such as debt reduction or salary sacrifice".
According to Batten, if a client says they don't want to pay off debt first - even if the adviser feels that doing so is in their best interest - then both parties should be able to "move on".
"The client may well instruct an adviser that they only want advice on how to invest certain funds without considering whether they should pay off debt first," said Batten.
"There's a level of paternalism in the draft Regulatory Guide that will make adviser/client relationships potentially difficult," he said.