Research the key to meeting best interest
In meeting their best interest duty, Russell Investments director of client investment strategies Scott Fletcher said financial advisers might have to go beyond third party research when selecting an approved product list (APL).
He said that while research providers played a key role in the fund manager selection process, advisers must still have an in-depth knowledge of the financial products they select and the combination of funds that will best meet their clients' needs.
"It's not the adviser's main game to select managers, it's to provide holistic advice to clients," he said.
In the past, an adviser would have potentially met their legal obligations in the event of a fund collapse by falling back on the APL of their dealer group. With best interest set to play a big role in the coming six months, ignorance was no longer an excuse, Fletcher said.
"I think what we've found in the last few years, particularly with advisers wanting to move up the client tree towards more high net worth and self-managed superannuation fund investors, the litigation risk increases, not just the regulatory risk, but the ability of those clients that are now getting into your business to take legal action in the event they think something has gone amiss," he said.
"Even if you've got a small APL, in the best interest duty under FOFA, it's not enough to say, 'well, I can scope this advice out of this client's situation because I've got a small APL'."
In the new environment, Fletcher said he sees multi-manager providers like Russell playing a much bigger role in the financial services industry, particularly because they have the scale to operate in-house capabilities across areas such as capital markets insight, manager research and portfolio construction.
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