The best interest duty component of the second tranche of the government’s financial advice reforms is a good compromise, but could have gone further in guiding good behaviour rather than prescribing it, the FPA said.
Late last week, Assistant Treasurer Bill Shorten introduced the second tranche of the Future of Financial Advice (FOFA 2) draft laws, including the keenly awaited best interest duty definition.
FPA General Manager Policy and Government Relations Dante De Gori said best interest was a solid step in transforming financial planning into a true profession.
“We think this is a great start. In all honesty, we think it could have gone further. There’s probably a bit too much prescription in there for our liking. It’s a compromise that, for this point in time, probably will work,” De Gori said.
He said the countless hours of consultations and negotiations had resulted in a broad swathe of views from complete prescription to a complete principle-based approach and everything in between.
He credited government with striking a balance between the wide spectrum of views.
“You’re never going to satisfy everybody and, in light of that, I think we’ve come to a good compromise,” he said.
Enshrining the best interest duty in law is seen as the heart of the reform package, and getting it right is viewed as key to restoring trust in the financial advice industry and transforming it into a bona fide profession.
“Our main aim was to have a best interest duty that actually influenced the behaviour and motivation and conduct of individual financial planners. We already have a client-first principle so we didn’t want a template, tick-a-box approach,” De Gori said.
Best interest was initially part of the first tranche of FOFA but was eventually pushed to the second tranche.
The delay gave drafters more time to work on the measure amid wide criticism that the definitions were too broad and compliance would be difficult at best.
Late last week, fellow advice body, the Association of Financial Advisers (AFA), said the best interest principle was sound but it was still working its way through the detail.
AFA chief executive Richard Klipin said best interest had the potential to increase the cost of professional indemnity insurance.
However, Klipin said a bigger concern centred around the conflicted remuneration component of FOFA 2.
He said the proposed ban on risk insurance sales inside of superannuation but not on sales outside of superannuation would confuse consumers.
