Financial advisers focusing solely on price when it comes to advising clients on a superannuation or investment platform may not meet their legal obligations, according to The Fold Legal.
In a report on platform advice, commissioned by Netwealth, the law firm said there had long been a tendency for advisers to let the price of a platform determine their recommendation, rather than looking at the needs, objectives and preferences of clients.
The Fold Legal said the issue with focusing on price alone was that platforms were financial products, not just technology solutions.
“This means that you’re providing financial product advice each time you advise a client on which platform they should invest through,” it said.
“With financial product advice comes a range of legal obligations (in the Corporations Act and, more recently, the Financial Advisers Standards and Ethics Authority code of ethics) that require you to ensure your advice is appropriate and in the best interests of your client.”
The law firm said while price was a relevant consideration, age, life stage, attitude towards advice, level of financial and digital literacy, and desire for specific platform features were factors that also needed to be considered.
It said when recommending a financial product advisers should:
- Act with integrity and in the best interests of your client;
- Capture the client’s needs, objectives and preferences and base your recommendation on those needs, objectives and preferences;
- If there is a conflict, prioritise your client’s interests above your own;
- Ensure your recommendation is appropriate for, and adequately addresses, your client’s needs, objectives and preferences;
- Form a view as to whether the recommendation is likely to leave the client in a better position;
- Satisfy yourself that your client understands the benefits, costs and risks of your recommendation; and
- Satisfy yourself that the costs of the recommended product are fair and reasonable, and represent value for money for your client.
Comments
Can the vested interest parties just F&@K off "commissioned by Netwealth, the law firm said......"
Nothing other than a platform provider protecting FUM and a law firm seeking seeking fees.
Yes well, tell that to all internal AFSL compliance lawyers who speak to ASIC - they are told that in 99.9% of cases, price is the main factor.
I know we live in a world that defines platforms as products but this could not be more erroneous. They provide a service, not a product. Aggregating and reporting on assets is a service, not a product. Transacting on assets in on platform is a service, not a product. Simply because it is provided under a PDS doesn't magically change this. And yet we are forced to treat it like a product which is simply deceitful.
Sorry but it's a product by the mere fact that platform providers make money from the cash component and by a myriad of other fees that relate to investment products within the platforms. Shelf fees etc
The cash account is the product, not the platform. And really, it's just a bank account. If clarity is really needed on this in the nanny state we live in, have a separate PDS for the cash account.
If they wanted to be treated as a service provider/platform only, then they should really just charge a fixed dollar fee or a subscription fee, e.g SMSF administrators such as Heffron do
This will truly clarify whether it's a service or a product, and based on their current fee structure, their fees are product based/assets based, so a big fat NO from me, and therefore Netwealth is a product provider, no matter what you want to call it.
So are financial planners product too? Looking forward to when ASIC says you have to recommend using the financial planner next door because they are cheaper.
this is already the case. refer to para 3 of standard 7, for everyone's benefit here it is :
From para 3, line 1" you must SATISFY yourself that any fees AND charges the client must pay you...
From para 3, line 10, "are fair and reasonable"
From para 3, line 11, "represent value for money"
how else could you satisfy yourself? (and meet std 2, 3) presumably by reference to benchmarking your fees against that of other providers in the market for the service?
I already do that, i.e. assess the relevant service and then tell the clients to go elsewhere because I am a lot more expensive. if they insist on dealing with me despite that, I ask them to tell me why (free, prior informed consent per std 4) sign an acknowledgement letter confirming that they acknowledge that I am more expensive but because I am so much more qualified than everyone else compared with, say within a 25k* radius (multiple advanced degrees i.e. Masters, CFP CPA, etc) else the clients feel safer and are happy to pay the premium to deal with me instead.
if you don't do it, you don't satisfy std 7. if you don't and I see that then I am obligated to report such persons due to std 12
*25k is a reasonable distance that you could expect a reasonable man/woman/person/non-binary to travel to seek advice
I did consider 50k or 100k that is probably too far, and I am satisfied that it is too far based on my personal judgement which is built on my professional education, training and experience
sorry I forgot to add, I was compelled to respond to the OP by virtue of std 12, and because I had to satisfy myself that I did all things possible to satisfy std 12* and also because of standard 1, line 4,5,6 and prevent others from it because of std 12 (its circular requirement if you know what I mean, some of you might be lawyers you will get what I am on about )
* I have created a spreadsheet of incidents which I record to satisfy myself and in the event of an audit to satisfy everyone else (and boy we do have a lot of everyone else's don't we)
Arguably some platforms do charge a fixed dollar fee. Eg FirstWrap charges a flat fee of $3,515 pa for a family group (which can include multiple investment and super accounts). If the total family group asset value is less than $3M, they use % of assets based pricing for amounts below that rather than slugging them with the full flat fee.
Absolutely correct, Smithy.
I hear this same BS argument from the licensee who would prefer I use another platform. Funnily enough, one that they have a financial interest in. At least they don't compel me to but that would be illegal. Financial advisers need a platform that is cost competitive, functional and usually good volume matters as well for the adviser and client. When something does go wrong on a platform, volume counts for attention and compensation getting for the client. Agreeing with the other comments here, the usual suspects are doing their utmost to feather their own nest using best interest duty as an excuse to disguise their true motive.
If you are being recalcitrant about using your licensee's inhouse products, then you should expect a blowtorch to the nethers from their weaponised compliance department. And if they ever need a human sacrifice to get ASIC off their back, you will be top of their list. Vertically integrated licensing - another Hayne fail.
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