The Federal Government's decision to amend how best interest duty (BID) works as part of the Future of Financial Advice (FOFA) reforms has been welcomed by the SMSF Professionals' Association of Australia (SPAA).
SPAA CEO Andrea Slattery said the industry body supported the amendments because the existing legislation had the potential to be too broad in its application, to create uncertainty and to cause a high compliance burden for financial advisors.
"Removing the BID catch-all provision will increase certainty and reduce costs for advisers, with these benefits flowing on to consumers of financial advice," she said.
"SPAA does not agree with the criticism that the changes to the BID have inherently weakened how it works.
"In our opinion, the general requirement to act in the best interests of the client in relation to advice still remains."
Slattery added that changing the legislative formulation of the best interest duty did not abrogate an adviser's fiduciary duty.
"Further, and as highlighted by SPAA's patron, the former Chief Justice of the High Court, Sir Anthony Mason, at our 2014 National Conference, changing the legislative formulation of the best interest duty does not abrogate an adviser's fiduciary duty at common law to act in the best interest of their client," she said.
But according to Slattery, while SPAA welcomed the changes to reduce red tape, amendments allowing an exemption from the ban for general advice were still too generous.
"We believe that the Government's amendments allowing an exemption for general advice from the ban on conflicted remuneration is still too generous, even though the Government tightened the exemption after consulting with the industry," she said.
"We believe the best consumer outcomes are achieved independently from links with product remuneration that can incentivise the sale of products over the provision of objective, quality advice in the genuine interest of the client.
"The best approach, in our opinion, is an environment where an adviser's remuneration is aligned with providing high quality advice without the influence of commissions."
Slattery said that SPAA understood that a key motivation of the Government's amendments to remuneration of general advice was to increase access to general advice by lowering the cost of this advice.
"However, improved availability to general advice does not equate to consumers receiving financial advice that is appropriate, adequate or will assist them in making improved financial decisions," she pointed out.
"Research undertaken by SPAA has shown that personal advice tailored to consumers personal circumstances results in the consumer having increased engagement with their financial future and retirement savings, and consumers are increasingly demanding specialised financial advice to assist them achieve their financial goals."
Indeed for Slattery, the FOFA reforms do not address the competencies of those providing financial advice.
"We believe raising the standards of education, training and competencies for financial advisers is still integral to improving the quality of financial advice and improving outcomes for consumers," she said.
Originally published by SMSF Essentials.
