The application of the proposed opt-in requirements under the draft legislation of the Future of Financial Advice (FOFA) is too wide, law firm Henry Davis York has said in its submission to Treasury.
The legislation should only apply to personal advice, not to general advice, the firm said, because it would significantly impact issuers of financial products.
"On the basis of the current drafting, the scope of the definition in new section 962A of 'ongoing fee arrangement' is potentially broader than what we understand to be the policy intent," the firm said in its submission.
"As currently drafted, the definition covers general advice situations as well as personal advice situations."
"We submit that in the interest of consistency with both the policy intent and the best interest test, the definition of 'ongoing fee arrangement' in proposed section 962A should be expressly limited to personal advice situations."
"We believe that unless this amendment is made, the unintended consequences for product issuers who also give general financial product advice could be significant."
Although Henry David York partner Elizabeth Gray agreed that general advice was often provided for free, product providers could be caught by the legislation where products have an ongoing cost, including a management cost. The cost of providing general advice could be interpreted as part of this fee.
"But we think this was simply an error in the draft and will be corrected," Gray said.
The law firm also argued that some of the requirements under the best interest rules of the legislation were too broad.
Section 961C(2)(f) requires providers, in order to act in the best interest of their clients, to asses whether the client's objectives could be achieved, and needs met, through means other than the acquisition of financial products.
"Does this section impose an obligation on an adviser to advise a client who wants to live comfortably in retirement to marry someone rich?" the firm asked rhetorically.
"Arguably, this proposed subsection does not add significantly to the already extensive list provided in draft section 961C and could be deleted," the firm said.
