Facts on FoFA amendments reveal empty product rhetoric and political posturing
Rhetoric and unnecessary scare mongering are clouding the facts about proposed amendments to the best interest duty component of the Future of Financial Advice (FoFA) legislation.
“Australian consumers have nothing to fear from proposed changes to remove sub-section (g) (section 961(B)(2) (g) of FoFA legislation,” says Financial Planning Association of Australia CEO Mark Rantall.
“We are witnessing an extraordinary effort by product providers and those who represent them to build a political position – based on flimsy arguments – in defence of a redundant section of FoFA pertaining to the best interests duty.
“In this case the facts really do speak for themselves. Consumers have nothing to fear from the proposed amendments. We reiterate the facts here, in chronological order and on the record, for all to see,” Mr Rantall said.
THE FACTS ABOUT SUB-SECTION (g):
- The best interests duty obligations are for the first time a statutory obligation in law. This was not the case before FoFA and this duty will remain long after any amendments made by the Government. The significance of having a best interests duty obligation in law should not be underestimated as it provides the consumer with protection and certainty never seen before. It also provides the regulator and the courts with powers greater than that available under Common law.
- The industry pushed for the safe harbour steps to provide some criteria for how a financial planner could be judged otherwise it would have to wait until the courts decide on what best interest looks like by setting a precedent.
- The best interests duty and related obligations (in Division 2 of Part 7.7A of the Corporations Act) require financial planners to complete four obligations when providing personal advice to retail clients:
1. Act in the best interests of their clients (s961B);
2. Provide appropriate advice (s961G);
3. Warn the client if advice is based on incomplete or inaccurate information (s961H);
4. Prioritise the client’s interests (s961J and s961L)
The seven safe harbour steps are covered in the first obligation to act in the best interests of the client in s961B. It should also be remembered that s961B(1) states that “the financial planner must act in the best interests of the client in relation to the advice.”
Then s961B(2) provides the seven safe harbour steps as a way to help the financial planner discharge this duty. The purpose of this was to provide clarity and certainty about what a financial planner must do to meet their obligations.
The obligation does not end with the seven safe harbour steps. The financial planner must also provide advice that is appropriate, warn the client if the advice is based on incomplete or inaccurate information and finally, they must prioritise the client’s interests.
The obligation to warn clients and provide advice that is appropriate was present before FoFA, however the obligation to act in the best interest of the client and to prioritise the client’s interests are new and are not being repealed.
- The proposed change to the best interests duty is simply the removal of the 7th safe harbour step s961B(2)(g) – this does not in any way remove or diminish the legal obligation for a financial planner to ‘Act in the Best Interests of their Clients’ as required in Division 2 of Part 7.7A of the Corporations Act.
The FPA will continue its mission to educate consumers about the benefits of professional financial advice, and the professional difference consumers can benefit from when choosing a certified financial planning professional, operating under a world’s-best Code – the FPA’s Code of Professional Practice.
“The number one principle in that Code has always been that FPA members have an obligation to place the client’s interests first,” Mr Rantall concluded.