QOA proposes new best interests duty for financial advisers

quality of advice qoa review qoa Michelle Levy best interest duty

9 February 2023
| By Charbel Kadib |
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The long-awaited recommendations of the review include replacing the existing best interest duty with a “true fiduciary” alternative.  

In her final report to the Government, reviewer Michelle Levy proposed the introduction of a ‘statutory best interests duty.

The recommendation advocated for a new principles-based approach to compliance as an alternative to the current prescriptive framework.

Existing best interests duty obligations required financial advisers to abide by objective standards outlined under the Corporations Amendment (Further Future of Financial Advice Measures) Act 2012.

This included a ‘duty of priority’ — favouring a client’s interests if conflicted with those related to the issuer of a financial product.

“From inception it might be said that what is required by these duties is unclear,”  Levy observed.

Compliance with these obligations was effectively tested by using paragraph 1.25 of the Revised Explanatory Memorandum of the Act as a ‘safe harbour’.

“While the best interests duty is directed to the adviser’s conduct and the safe harbour steps set out the relevant steps, the legislature says that compliance will be tested by reference to the appropriateness of the advice,” Levy added.

“But even assuming this is a correct statement of the law, it is circular because the appropriate advice limb of the Corporations Act best interests duty is tested on the assumption the best interests duty itself has been satisfied.

“The adviser must ask themselves – if I had complied with my best interests duty, would my advice be appropriate? And so advisers, ASIC and the courts are back where they started. What does the duty to act in the best interests of the client in relation to advice require of an adviser?”

In light of a perceived lack of clarity regarding existing best interests duty obligations, Levy recommended introducing a “true fiduciary duty”, which reflected the general law and would not include a safe harbour.

This new obligation, which would apply only to financial advisers, would aim to ensure they were “motivated solely by the interests of their clients when providing advice”.

The Government was yet to issue its response to the recommendations handed down by the QOA Review. 

Click here to read a summary of five key advice recommendations made by the Review.

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