Personal financial advice provided by financial planners should not be exempt from the Government’s new financial product design and distribution obligations (DDOs) according to major industry superannuation funds body, Industry Super Australia (ISA).
ISA has told the Senate Economics Legislation Committee that the financial planner best interest duty is not sufficient to allow them to be exempt from the design and distribution powers to be handed to the Australian Securities and Investments Commission (ASIC).
In doing so, the ISA has directly countered the arguments put forward by both the Financial Planning Association (FPA) and the Financial Services Council (FSC) that personal financial advice should be exempt.
Answering a question on notice from the committee, ISA said: “A successful DDO regime is philosophically designed to place shared obligations for the responsible provision of financial products on entities across the entire ‘design-distribution’ continuum.”
“By exempting personal financial advice, this continuum of responsibility is broken,” the ISA said.
It said the key justification for a personal financial advice exemption was that advisers were already covered by the best interest duty under the Corporations Act but claimed this was a mistaken perception.
“It is a mistake to assume the best interest duty would provide a similar or comparable test to a target market determination,” the ISA said. “Given the financial advice case studies before the recent Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the limitations and problems with the Best Interest Duty have been fully exposed.”
“The argument that a DDO would create confusion with personal advice obligations is also irrelevant,” it said. “The target market determination is intended to define a class of consumers, not individual consumers.”