While advisers have clearly indicated their concerns over a client opt-in structure under Future of Financial Advice reform proposals, they have voiced little to no objection over the proposed introduction of a statutory fiduciary duty requirement that advisers act in the best interests of their client.
Our latest poll questions asks:
Does the introduction of a statutory fiduciary duty to act in the client’s best interests overcome the need to introduce client opt-in measures?
According to the Government’s own briefing document, its Future of Financial Advice proposals contain three key reforms:
- A prospective ban on conflicted remuneration structures
- The introduction of a statutory fiduciary duty requiring advisers to act in the best interests of their clients
- The introduction of adviser (opt-in) charging regime
While there are numerous other reforms under FoFA, these are the three highlighted by the Government.
But since the announcement of the FoFA reform proposals on the ANZAC Day holiday last year, and the subsequent industry debate and consultation, more advisers, dealer groups, fund managers and life companies seem to be questioning whether the first two of these key reforms (banning commissions, fiduciary duty) make the third key reform (opt-in) less relevant or even redundant.
The argument is that if an adviser has a statutory duty to place their client’s interests first at all times, and if they must in future charge a fee for all investment and superannuation advice, why is it then also necessary for an adviser to be forced to receive client consent via an annual renewal notice in order for that client to continue to receive and pay for financial advice?
The counter argument runs that unless an adviser charging regime, which includes opt-in, is implemented, there will not be sufficient clarity surrounding the nature of the adviser/client relationship and the rules under which the adviser should be remunerated. This in turn could lead to confusion and lack of client confidence in an industry whose reputation has been damaged by corporate collapses.
There are administrative and other issues associated with the opt-in reform proposal, but in terms of its principle, given the fact that commissionswill be banned and fidiciary duty will become enshrined into law, do you believe the introduction of an adviser charging (opt-in) regime is necessary?
Let us know what you think…
I wish polies and staff had to comply with these conditions, but they would never be able to comply they all would be constantly sacked and or in jail
The pricing method that the adviser will use should be clarified with new and clients via a letter and FSG/website. When I go to an accountant they do not even do tell me how much my specific tax return to be charged (they quote an hourly rate only).
In that vain, advisers will need to think strategically about different pricing amounts/structures for the differing clients i.e. high contact/volume/value vs low contact/volume/value.
I am a bit confused by the introduction of an apparently “New” statutory duty. My interpretation of this is that simply this is a duty enshrined in law. Isn’t that the case already? Section 945A of the Corporations Act requires us to have a reasonable basis for our advice and section 912A requires us to provide our services efficiently, honestly and fairly. Isn’t that a “Statutory Duty”? So what’s new? What is of more concern that Treasury has indicated this new Fiduciary Duty may require us to consider ALL products available when advising a client, including those not on our our approved list! A. how the hell are we supposed to know about all these products and B. what will our licensee’s have to say about this?
In relation to Fiduciary Duty and the government’s ‘beefing up’ of this regulation, currently I believe no Fiduciary Duty exists. The only requirement is to have a reasonable basis for the advice under Sect 945A of the Corp Act. Section 912A only relates to Licensees. Under Sect 945A an adviser can only be fined 5 penalty units or $500. The Government is looking to apply Fiduciary Duty under the Corporations Act similar to a Company Director. Hence fines move up to $200,000 and a possible 5 year jail if ASIC brings the charge plus damages. If an investor claims there’s unreasonable basis for advice, a civil action may see a fine of up to $200,000 damages. In my opinion, the reason why riskinfo has said “they (the advisers) have voiced little to no objection over the proposed introduction of a statutory fiduciary duty requirement that advisers act in the best interests of their client” is because the planning industry generally doesn’t fully understand the current situation, or the proposed reforms.
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