Speaking at the ISA-hosted Financial Advice in Super Symposium last week, ISA chair Peter Collins said the proposed amendments to FOFA represented an “effective repeal of the best interests duty”.
Mr Collins also claimed that the amendments would result in the “legal minima” for financial advice in Australia being set “lower than it's ever been in the past”.
But Halsey Legal Services principal Mark Halsey said he was “very surprised” by some of the “over the top” comments by Mr Collins.
“On the most basic level, a statement that the 'legal minima' is lower than it has ever been in the past suggests that somehow even the pre-Corporations Act situation provided more consumer protection that the revised FOFA amendments,” said Mr Halsey.
“However, even if one accepts that as hyperbole, and compares the proposed section 961B(2) with the old section 945A, it is clear that the protections are greater under the revised FOFA provisions, and that the best interests duty remains clearly enshrined in law,” he said.
Section 961B(1) of the Corporations Act provides that the advice provider must act in the interests of the client – and the proposed amendments to FOFA won’t change this, said Mr Halsey.
Section 961B(2) then outlines a number of steps providers can take to satisfy the requirement, he said.
“However, the existing FOFA law contained a further requirement that the advisers had taken any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client,” said Mr Halsey.
“That further provision is section 961(2)(g), and it introduced potentially open-ended liability for advisers and legal uncertainty for the market as a whole,” he said.
“An objective analysis of the whole of subsection 961B(2) reveals a significant improvement in the consumer protection provisions under the now repealed section 945A,” said Mr Halsey.
The adviser’s obligations outlined in961B(2) are “almost identical” to the obligations previously mandated under the now repealed section 945A, he said.
“These facts alone would render any suggestion of lower legal standard, or lower levels of consumer protection, as misconceived,” said Mr Halsey.
Furthermore, the new standard for providers is that advice be in their ‘best interests’ rather than having a ‘reasonable advice’, he said – and ‘best’ is a higher standard than ‘reasonable’.
“There was also a suggestion [by Mr Collins] that any changes to the FOFA legislation should take place after proper parliamentary debate, and not via regulation," said Mr Halsey.
“This position seems inconsistent with the previous position held by the ISA on this type of issue,” he said.
