Statutory fiduciary duty in the financial planning context is not as straightforward an issue as it may be in other professions, and no exemptions should be made for certain sectors, including intra-fund advice, according to the patron of the Self-Managed Super Fund Professionals’ Association of Australia (SPAA), Sir Anthony Mason.
Speaking at the SPAA’s conference in Brisbane yesterday, Mason pointed to the Future of Financial Advice (FOFA) reform proposal that there be a statutory fiduciary duty requiring advisers to place their clients’ interests ahead of their own, and said the reforms needed to be clearly drafted and be as simple as possible, explicitly identifying the class of persons on whom the duty would be imposed.
“We need people with clear minds and a basic understanding of English to craft the solutions,” he said, adding that the problem with the political process was that legislation was implemented without the problem being thought through.
Mason was strongly against the suggestion that intra-fund advisers be exempted from the statutory fiduciary duty requirement.
“If the exemption is strictly confined to the provision of information about a contributor’s existing entitlement in a fund, that is one thing,” he said. “But to grant an unqualified exemption for the provision of financial advice by a fund to a contributor would be to drive not only a horse and cart but a road-train through the statutory duty.”
Mason added that clarity was required around implementation of the reform. Currently an adviser could provide advice not in the client’s best interests and yet comply with the Corporations Act, he said — an issue that could be solved by simply amending section 945A of the Corporations Act.
“It would, however, be confusing to call the new statutory duty a ‘fiduciary duty’ as such a description will only suggest, quite wrongly, that the new duty is associated with the negative duties of a fiduciary not to put himself on a position of conflict of interest and duty, and not to make an unauthorised profit out of the fiduciary relationship,” he said.
Mason asserted that the duty of the financial adviser to his client could not be limited to the obligation to put the clients interests ahead of their own and those of others. He said they must go further and ensure that the advice was appropriate, and in line with the client’s instructions and their circumstances.
“In this respect, one alternative is to marry the duty to act in the best interests of the client with the existing provisions of section 945A [of the Act],” he said.
Another alternative was moulding the current duty of care requirements for advisers with the duties of directors of corporations under the Corporations Act, he added.
Mason said that should a statutory fiduciary duty be imposed, it could also require that financial advisers look beyond the Approved Product Lists in the search for appropriate investments and products for their clients, or at least demonstrate why they chose from their own list of products. This was different to the current environment where the onus was more heavily on the client to prove inappropriate advice was given should a dispute arise, he said.
