The FSC asked Herbert Smith Freehills to consider two questions about the government’s proposed changes to the FOFA legislation.
Firstly, the FSC asked the legal firm whether the removal of paragraph (2)(g) of section 961(b) of the Corporations Act – that is, the ‘catch all’ section of the best interests duty – would remove the obligation of an adviser to act in the best interest of the client if the adviser chooses to rely on the statutory defence in section 961B(2).
The FSC also asked whether the addition of paragraph (4A) to section 961B or the existing provisions of section 961B would “allow an adviser to provide advice in a situation where he or she agrees the subject material of the advice with a client which does not have proper regard to the relevant circumstances and needs of the client”.
The opinion of Ian Jackman SC and Gregory Drew, under instruction of Herbert Smith Freehills, was ‘no’ in both cases.
FSC chief executive John Brogden said the legal advice was “clear”.
The proposed amendments do not reduce in any way a financial adviser’s legal requirement to act in the best interest of their clients,” Mr Brogden said.
“Consumers will not be impacted by the amendment being proposed to the best interests duty. In fact, removal of the catch all phrase will provide clarity to consumers on what they can expect from their adviser,” he said.
The legal advice also provides “clarity” that scalable advice is permissible under the proposed FOFA changes, said Mr Brogden.
“Scalable advice is imperative if the FOFA reforms are to meet their objective to increase the number of Australians who receive advice,” he said.
“Our advice confirms these small technical amendments do not change the substance nor the intent of the FOFA reforms. That is, to improve the quality and quantity of financial advice and to make it accessible for all Australians,” said Mr Brogden.
The advice obtained by the FSC comes after the ISA publicised its own advice from legal firm Arnold Bloch Leibler which stated that the FOFA amendments were inconsistent with the nature of the best interests duty.
