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.”
Comments
Even with the RC case studies slapping the FPA and FSC in the face they continue to show total ignorance. The ISA is right on this one. If the ISA get their way then it's a shot in the arm for the independent planners who take their obligations seriously!
I'm not what relevance this has to ISA or why they are even being quoted in the press for that matter? They are there to represent Industry Super Funds yet seem keen to be the new cop on the beat and stick their noses into matters that really don't concern them!
The ISA employ financial advisers too.
Phil, they're called salespeople. They don't have any of the same requirements as we do, they have one product that is totally vertisally integrated and they are marked on volume of SOA's but that in itself is more about 'retaining FUM' than actual advice.
The few honest ones who I have spoken to who used to be FP's but sold their businesses and moved into that area have also said how very different and easier it is than 'real planning'.
The key issue here is how the ISA {like a lot of other global business chains} is continually entrenching monopolistic arrangements, which ultimately will drive up costs & prices for consumers (ie fund members). That is all.
Should GPs be subject to laws governing the operation of pharmacies and the distribution of medicine from those pharmacies?
A stupid (but not surprising) response by ISA.
With respect, your analogy does not quite fit. GP's prescribe medicines much like a financial adviser might subscribe a fund. It's not just BI duty in play here but the suitability rule. The latter is at the heart of DDO undertaken by a financial adviser.
I think it is an issue of authority and control. If you work for the fund manger, perhaps you should be responsible for both design and distribution. If you do not work for the fund manager (in the same way a GP does not work for a drug company) it would be more appropriate to only be responsible for the advice given, which is covered by fiducary duty already.
Good point ISA. The rules should apply to all advisers employed by a product provider (ie. Bank, industry fund or life insurance company). Happy now?
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