The Association of Financial Advisers has issued a challenge to opponents of the proposed amendment to the best interests duty, saying they would like to see an example of when the ‘little g’ step would apply.
In its submission to the Government’s draft Future of Financial Advice (FoFA) amendments, the AFA said it was ‘extremely disappointed’ to see a ‘significant volume of commentary’ that has stated that the changes will have negative implications for consumers.
We did not consider it appropriate to have a safe harbour that included an open ended requirement
In particular, the AFA said any argument that consumers would lose protection if the proposed changes to the best interests duty were enacted was “…motivated by a desire to increase the level of uncertainty, complexity and costs for clients seeking personal financial advice”.
The AFA said it believed the amendment to the best interests duty proposed by the Coalition Government would, in fact, bring greater clarity to the industry.
‘In our view, the first six steps adequately set out the obligations when providing financial advice. Section 961B(2) is a safe harbour requirement. We did not consider it appropriate to have a safe harbour that included an open ended requirement where no one could clearly explain what was required in order to comply,’ the Association said in its submission.
The AFA then called on critics to provide an example of a situation in which the only protection to a client was the ‘catch-all’ safe-harbour step.
‘Whilst there have been many objections raised with respect to the removal of this clause, we challenge those opposing this to come forward with an additional step that is not already addressed in the first six steps in Section 961B(2).’
…advisers and clients sit on the same side of the fence
At a broader, legislative level, the AFA said the package of reforms were about improving the FoFA regime, and making it more consumer friendly, effective and practical.
‘In contrast to much of the public commentary on the amendments, advisers and clients sit on the same side of the fence and as such the AFA will not advocate for something that is detrimental to consumers. We believe that these amendments have a net positive impact upon consumers in that any measures that have been removed have very minimal consumer benefits and that the amendments will have a positive impact upon the cost of running a financial advice practice, as well as improve the cost and access to consumers that wish to receive advice. We therefore believe that these amendments are positive for both consumers and financial advisers.’
The AFA’s submission also made the point that, contrary to some media speculation, the FoFA changes would not increase the risk of a future financial ‘collapse’, like that of Storm Financial. ‘But neither do we think that any legislation or regulation can fully remove this risk from the financial landscape, particularly with reference to product failures and fraudulent activity,’ the Association said.
While welcoming the vast majority of the changes included in the draft legislation, the AFA submission included a number of key recommendations to the Government. Click here for more.
