26 Nov 2011, Posted by admin in Business,News, 0 Comments

Funds unhappy with financial advice plans

By ANDREW MAIN  from The Australian 

THE retail funds management sector is up in arms about its liability under Future of Financial Advice reforms introduced to parliament yesterday.

Funds managers are upset about the extent of liability that may flow from the “best interests duty” introduced in FoFA II, as the latest tranche of laws is called.

They are also concerned about proposed laws on the provision of so-called scalable advice, about particular issues rather than comprehensive plans.

The retail industry’s umbrella organisation, the Financial Services Council, fears financial planners may find themselves broadly legally liable even if they have been asked only to provide advice on a narrow issue.

FSC chief executive John Brogden said last night the proposed “best interest duty is unworkable in practice and would give rise to significant unintended consequences if not amended”.

His organisation agreed planners should be obliged to act in the best interests of their clients, but the proposed laws would leave the industry uncertain and increase the cost of advice, he said.

“Our legal advice tells us this legislation would be very difficult to work with, from the point of view of understanding what it means and how it would apply in practice.

“To make matters worse, no reputable financial services provider will be able to offer scalable advice under this particular duty. This will be to the detriment of millions of Australians,” he said.

The explanatory memorandum says planners cannot be exempted from that best interests duty by seeking a formal agreement from the client that the advice was what the client requested.

However, it notes, scalable, rather than comprehensive, advice is to be encouraged. “As long as the provider acts reasonably in this process and bases the decision to narrow the subject matter of the advice on the interests of the client, the provider will not be in breach of their obligation to act in the client’s best interests.”

Industry Super Network chief executive David Whiteley said FoFA II was “a set of moderate, interdependent measures that have been developed through extensive consultation with industry”. As his organisation and the Financial Planning Association of Australia were in agreement on the best interests test, “it indicates the government has done a good job, basically”.