Key financial services laws need to be scrapped and redrafted afresh because they are too focused on the delivery of products rather than advice, according to a specialist financial services lawyer, Ian McDermott.
McDermott is urging the scrapping the of chapter Seven of the Corporations Act because of what he describes as inherent structural problems and complexity which have not been addressed by either the Future of Financial Advice (FOFA) changes or the industry's self-directed moves towards becoming a profession.
"While I support the move to making the financial advice industry a profession, and FOFA introduces some worthwhile progress towards that end goal, there is no escaping the fact that the financial services laws were drafted ostensibly with financial products in mind," he said.
McDermott said this had given rise to enduring issues and concerns by financial advisers that they are seen as "product floggers".
"We all know that the current financial services regime has developed from the previous life insurance and fledgling investment product industry. This has resulted in the law having a ‘product' focus instead of a strategic advice focus. Even advice, under the Act, is called ‘financial product advice'," he said.
McDermott said FOFA had tried to remedy some of this by introducing the term ‘financial advice' for the first time, as opposed to financial product advice but suggested that as ‘financial advice' was not defined in the Act, this actually resulted in greater legal uncertainty instead of the greater clarity sought.
"In my view, if the Act were to introduce a new definition of ‘financial advice' as opposed to ‘financial product advice' this would help break the nexus between advice and product and be another useful step in making this vital industry the respected profession we all want it to be," he said.
"But this would be difficult for regulators as such a definition could capture advice by real estate agents, accountants, lawyers, and others. So, the definition would need be properly scoped."