Speaking at the Financial Advice in Super Symposium in Melbourne, co-hosted by three industry fund organisations, Financial Planning Association (FPA) chief executive Mark Rantall said section 961B(2)(g) of the amended Corporation Act under FOFA has been a source of contention within the financial services industry.
The so-called 'catch-all' provision of the best interests duty requires an advice provider to take 'any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client’s relevant circumstances’.
The provision sits on top of a number of prescriptive 'steps' that financial advisers must take to satisfy the best interests duty.
Assistant Treasurer Arthur Sinodinos released draft legislation that proposed the removal of the 'catch-all' provision from the best interests duty in late January.
But the move to amend the duty has been met with fierce opposition in the mainstream press, and it remains to be seen if the changes to the law can be passed through the Senate.
Mr Rantall said the FPA has never supported the catch-all provision – adding that its removal will not affect planners' ability to act in their clients' best interests.
Even without the 'catch-all' provision there are four separate requirements for financial planners to act in the best interests of their clients, he said.
“We also think it gets in the way of scaled advice and limited advice, and [finally] it's such an open-ended requirement it will be tested in the courts,” he said.
Financial Services Council chief executive John Brogden agreed that the 'catch-all' provision needed to be removed.
“You can't have bucket loads of prescription and then have a clause at the end that says: 'By the way, [you must consider] anything else that is in the best interests of the client',” he said.
“You either have one or the other. And we effectively had the latter in the past – it wasn't best interests duty, it was 'appropriate advice',” said Mr Brogden.
The Labor government decided, particularly after the collapse of Storm Financial, that “extreme detail” was needed to determine what 'best interests' is, he said.
“Now to say to a planner: 'Here are the cavalcade of tests you must achieve' and on top of that 'anything we think is in the best interests of the client' gives you no certainty to do your job – none,” said Mr Brogden.
“If it stays as it is it will almost certainly end up in the courts at some time in the next three years. And the court will determine how [the catch-all provision] works,” he said.
“Despite the fact that we all spent the last three years in the trenches [lobbying] to try and get it right,” he added.
