4 October 2012
Prashanti Ravindra
Senior Lawyer
Strategic Policy
Australian Securities and Investments Commission
Level 5, 100 Market Street
Sydney NSW 2000
BY EMAIL policy.submissions@asic.gov.au
Dear Ms Ravindra,
FSC SUBMISSION – ASIC Consultation Paper 182: FoFA Best Interests Duty and related obligations –
update to RG175
Thank you for the opportunity to provide a submission to Australian Securities and Investments
Commission (ASIC) Consultation Paper 182 (CP182).
The Financial Services Council (FSC) represents Australia's retail and wholesale funds management
businesses, superannuation funds, life insurers and financial advisory networks. The FSC has over 130
members who are responsible for investing $1.8 trillion on behalf of more than 11 million Australians.
The pool of funds under management is larger than Australia’s GDP and the capitalisation of the
Australian Stock Exchange and is the fourth largest pool of managed funds in the world. The FSC
promotes best practice for the financial services industry by setting mandatory Standards for its
members and providing Guidance Notes to assist in operational efficiency.
The FSC notes that the FoFA reforms are comprehensive, complex and inter-related and are therefore a
package of reforms rather than discrete individual measures and therefore many of our comments on
CP182 are also relevant to Consultation Paper 183 and vice versa. Critically the reforms impact almost all
licensees operating a financial service in Australia. Given the complexity and scale of the reform to be
implemented with a relatively short timeframe (between legislation passing, ASIC Regulatory Guides
being issued and the commencement date), the likelihood of unintended consequences are high. A
pragmatic and responsive approach from regulators and Government particularly during the early phase
of the reforms is necessary to ensure that the objectives of the reforms, largely that more Australians
access affordable advice which is in their best interests, are not undermined.
Please find our submission enclosed. Our submission aims to provide you with an overview of what we
consider to be the key issues as well as a more detailed response to the questions posed in CP182.
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We look forward to discussing the contents with you. If you have any questions regarding the FSC’s
submission, please do not hesitate to contact me on (02) 9299 3022.
Yours sincerely
CECILIA STORNIOLO
SENIOR POLICY MANAGER
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FSC SUBMISSION
ASIC CONSULTATION PAPER 182:
FUTURE OF FINANCIAL ADVICE:
BEST INTERESTS DUTY AND RELATED
OBLIGATIONS – UPDATE TO RG 175
OCTOBER 2012
Page |4
1 KEY ISSUES
Consultation with members has highlighted the following key issues:
1.
2.
3.
4.
Purpose of the guidance
Interaction with the other ASIC Consultation Paper(s) which amend RG175
Best Interests and related duties
The Approved Product List
The key issues are discussed in detail following:
1.
Purpose of the guidance
The FSC submits the basic policy principles of FoFA as announced1 by the government are:


Financial advice must be in the client’s best interest – distortions to remuneration , which
misalign the best interests of the client and the adviser, should be minimized; and
In minimizing these distortions, financial advice should not be out of reach of those who would
benefit from it.
Further, the FSC notes that the Government’s Future of Financial Advice package of reforms policy
principles stated objectives2 aimed to achieve the following results:



improve the quality of financial advice;
strengthen investor protections; and
underpin trust and confidence in the financial planning industry3
The introduction of the FOFA reforms has meant that the financial services industry is subject to a huge
amount of change, which must be implemented in a relatively short space of time. Consequently, the
clarity of the legislation and regulatory guidance provided by Treasury and ASIC respectively, is of critical
importance in order to enable the most efficient transition to the new regulatory regime. The FSC
values clear direction and certainty in the law and regulatory guidance applying to its members.
In a meeting of the FSC FoFA working groups with Commissioner Peter Kell and a number of senior ASIC
managers to discuss CP182 and CP183 on 10 September 2012, the FSC shared concerns about the
language used by ASIC in CP182. The FSC is concerned that:
1
Chris Bowen MP, Minister for Financial Services, Superannuation and Corporate Law, Future of Financial Advice Information Pack April 2010,
page 2.
2
“The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP, said that the Future of Financial Advice reforms are
designed to tackle conflicts of interests that have threatened the quality of financial advice that has been provided to Australian investors, and
the mis-selling of financial products that culminated in high profile corporate collapses such as Storm Financial, Opes Prime, and Westpoint”,
Chris Bowen MP, Minister for Financial Services, Superannuation and Corporate Law, Media Release 036, April 2010.
3
“It gives me great pleasure to announce significant reforms to the provision of financial advice, which I believe will improve the quality of
advice, strengthen investor protection and underpin trust and confidence in the financial planning industry. These reforms should ultimately
encourage more people to seek financial advice.” Ibid.
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


the language used in the proposed guidance provided by ASIC in CP182 goes beyond the legal
requirements contained in the Corporations Act and in doing so introduces new legal concepts
and obligations which do not provide interpretative assistance but rather outline ASIC’s views
more generally with respect to quality financial advice.
seeks to impose a quality advice standard of ASIC’s making, rather than simply interpreting the
law; and
creates a regulatory obligation (to determine if the best interests duty has been met) which
requires the that the client be in a better position after acting on the advice creating an
outcomes based test.
Following the 10 September meeting, we now understand that it is ASIC’s intent to provide the industry
with guidance on how ASIC interprets FoFA legislation, and not to create new or higher regulatory
obligations for the industry to comply with. The FSC respectfully submits that some elements of CP182
need to be redrafted to ensure the guidance is limited to interpreting the legislation, rather than seeking
to achieve any other purpose.
In light of these reform objectives and desired results, we suggest RG 182 acknowledge the need to
balance the three objectives of quality, affordability and accessibility. The FSC believes that ASIC’s
guidance is crucial in ensuring that the aim of improved financial advice is achieved without unduly
reducing the affordability or accessibility of financial advice. Recognition of the intention to balance the
three aims would be welcomed.
Minister Shorten’s second reading speech introducing the best interests duty to Parliament4 said:
“The best interests duty is a legislative requirement to ensure the processes and motivations of
financial advisers are focused on what is best for their clients. It is true that this will ultimately
lead to better advice in many cases, but first and foremost it is about regulating conflicts, not
the intrinsic quality of the advice provided.”
The FSC welcome’s confirmation from ASIC that the best interests duty and related obligations are not
intended to require advice providers to provide perfect advice to each client (para 29).
Recommendation
It is the FSC’s strong preference that ASIC’s regulatory guide provide the industry with insights into how
ASIC interprets the law and gives practical guidance (for example, describing the steps of a process or
how two obligations such as best interests and the duty of priority may work together to assist a
licensee to meet its obligations).
4
13 October 2012, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22chamber%2Fhansardr%2Ff7ea053a-8eba40f5-8481-efbfd7e1e641%2F0014%22
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2.
Interaction with the other ASIC Consultation Paper(s) which amend RG175.
The FSC notes there is an element of overlay between CP182 and CP183 with regards to scaled advice.
However, we remain concerned that neither consultation paper currently addresses how to scale advice,
in particular the scope of the advice (the inquiry), and still comply with the best interests and related
obligations.
Recommendation
The FSC recommends that ASIC consider addressing how an advice provider can scale advice (that is by
scoping the fact find to the subject matter (the scale)the client has requested, if the client so requests)
and meet the best interests duty in the proposed update to RG175 (CP182).
Guidance in respect of the difference between factual information, general and personal advice5 across
product sets are more appropriately addressed by the proposed updated RG200 (CP183).
Scaled advice
The FSC is pleased to note that ASIC confirms that scaled advice is both possible under FoFA and a key
public good to enable more Australians to access affordable advice. However, as indicated previously,
the FSC is concerned that neither CP182 nor CP183 provide guidance on how to actually scope the
advice and meet the best interests and other obligations. In certain instances there is also inconsistent
terminology or language (scaling, scoping and acting on instructions). The industry has come under
criticism regarding its propensity to favour holistic advice. To enable the industry to embrace piece by
piece or scaled advice, participants need to clearly understand their legal obligation.
Recommendation
The FSC recommends that ASIC’s guidance provide definition for the new terms and provide guidance
on how to scale and scope the advice congruent with the best interests and related duties.
In our view, as illustrated below, “scoping: relates to the subject matter of the advice (see the horizontal
below) and “scaling” refers to the depth of inquiry based on the ‘complexity’ of the client needs and
circumstances (the vertical in the illustration below).
5
Addressing the difference in personal advice which may be intra-fund, scaled or holistic advice (that is where is the line between these various
advice offering) in CP183 (proposed updated RG200) would be welcome.
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The use of terms such as ‘simple’ or ‘complex’ circumstances/needs are also new in the context of the
new regulatory obligations for advice providers especially if the terms are being used to determine what
obligations an adviser has to their client.
Recommendation
Given there is no defintion for what is simple and what is complex, we suggest an illustrative tool (like
the following) to accompany ASIC’s proposed guidance may assist advise providers.
Words that could accompany the diagram:
“As the scope of the advice increases from a single subject to multi-subject advice, generally the scale of
the advice will also increase due to the number of interacting topics being advised on as demonstrated
in the diagram”
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Scope of the subject matter
1. In our view, in considering the subject matter of the advice, the following considerations are
relevant, and should be made clear in the guidance (in RG175):
 the client’s instructions generally and within those instructions any limitations to the scope of
the advice requested6;
 what the client can afford in terms of the advice requested is a relevant consideration in
scoping the advice;
 If the client scopes out a particular advice area suggested by the adviser, and the adviser
warns the client of the consequences of not receiving advice about that subject matter, the
adviser can proceed with the agreed scope;
 the scope of the advice which flows from the client’s instructions including any revision to the
scope of advice following any changes to the client’s instructions as a result of dialogue with
the adviser.
2. What is involved in complying with the best interests duty will vary on a case-by-case basis; and
3. The scope of the advice will be determined by client instructions but also by the adviser’s
overriding duty to act in the client’s best interests. It follows that the instructions given by the
client are capable of being revised and that the adviser does not reduce the scope
inappropriately (as per CP183 paragraph 75 page 31).
3.
Best Interest and related duties
As indicated in Key Point 1 previously, the FSC is concerned about ASIC’s intent (as evidenced by the use
of certain terms and phrases) in CP182 as the industry’s interpretation of ASIC’s proposed approach
creates uncertainty about the law for advisers and licensees.
The FSC appreciates the guidance given in relation to the safe harbor steps set out in section 961B(2) of
the Corporations Act. However, we have some comments in respect of the following areas:
 Scope – the subject matter of the advice (covered previously);
 Best interests duty is a process not an outcomes test;
 Priority duty; and
 Recommending a financial product – APLs (covered in Key Issue 4).
Best interests duty is a process not outcomes test: Better position
FoFA’s Explanatory Memorandum (EM) at paragraph 1.20-1.21 is clear that the focus of the best
interests duty is on process rather than outcomes:
“1.20 There is a general obligation on providers of advice to act in the best interests of the client.
[Schedule 1, item 23, Division 2, subsection 961B(1)]
1.21 This general obligation is supplemented by a provision setting out steps that, if the provider
can prove they have taken, will be taken to satisfy the general obligation. These steps have been
6
CP183 paragraph 71 and 72 on page 29 are welcome and consistent with the FSC’s views.
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set out based on the specific conditions under which advisers currently operate. This approach is
needed given the broad nature of a best interests obligation; it may allow a provider to
demonstrate that it has complied with the obligation by proving it took certain steps (emphasis
added).”
It is our expectation based on the outcomes of the consultation process on FoFA and based on what the
Minister has stated that the best interests duty is a process test. The Minister has previously stated his
view that the best interests duty is a process-based duty. The FoFA EM confirms this point at 1.23:
“These steps recognise that the requirement to act in a client’s best interests is intended to be
about the process of providing advice, reflecting the notion that good processes will improve
the quality of the advice that is provided. The provision is not about justifying the quality of
the advice by retrospective testing against financial outcomes. (emphasis added)”
We are concerned that ASIC are introducing a new concept which does not appear to have a legal basis
under the duties comprising the best interests duties and which not only far exceeds the legal tests but
also make compliance with them difficult and very uncertain. It is potentially dangerous and open to
abuse to create a regulatory obligation which seeks to assess past behaviours and beliefs according to
whether a particular outcome of those behaviours was likely in a future that, at the time was unknown
and unpredictable, but which will be known at the time of assessment. Members have diagrammatically
(process mapped) illustrated ASIC’s proposed RG175 as shown in Appendix 1. The blue processes are
those which we interpret as new obligations which do not appear in the law. Each process adds cost and
complexity to the advice process and therefore for the consumer.
The FSC submits that CP183 paragraph 68 meets out expectations with regards to compliance with
s961B(2).
“If an advise provider has taken the steps in s961B(2), they are considered to have met their
obligations to act in the best interests of their client”.
The above guidance is not provided in CP182 nor proposed RG175.
CP182 concentrates on a new concept of “better position”7. If the “better position” test is ASIC’s
guidance on how to meet the best interest duty obligation created by s961B(1) as opposed to taking the
steps in s961B(2), this intent is not clear in the Consultation Paper nor the proposed RG175.
Recommendation
FSC member’s interpretation of CP182 is that the “better position” test applies to both s961B(1) and
s961B(2) and this submission is written to address that interpretation of CP182. If ASIC’s intent is
different and the “better position” test only applies to s961B(1), the FSC would welcome the
opportunity to discuss this significant issue with ASIC following this submission.
7
CP182 paragraph RG175.A28 makes it clear that ASIC will test the best interest duty based on the client being left in a better position.
P a g e | 10
It is also one thing to look at whether the advice provider believed at the time that the advice would be
likely to leave the client in a better position (though this test is itself problematic and not supported),
but it is another thing to:
a)
b)
ask what a reasonable person would have believed was likely, with the benefit of hindsight;
and
require that the advice in fact resulted in the client being in a better position if the client
acted on the advice provided. RG175.A27 sets out ASIC’s expectations that the client will in
fact be in a better position as a result of having acted on the advice and RG175.A29 refers to
the measurement being an actual outcome (eg “if the improvement is trivial”) as opposed to
beliefs of the adviser at the time the advice was given.
Recommendation
The difference between the tests highlighted above is significant and while we do not agree with the
introduction of any outcomes based tests, it is crucial that ASIC provide consistent and clear guidance as
currently there are inconsistencies throughout CP182.
The FSC’s interpretation of the duty(s) is summarised in the following four (4) principles:
Best Interest Duty is not an outcome test
The best interests duty is not concerned with:


outcomes per se, but rather actions taken by the adviser being motivated by the interests of the
client; or
producing any specific or specified outcome (in particular, a ‘better outcome’) for the client as a
matter of law.
Better outcomes may flow as a result of adherence to the best interests duty (and the related duties to
give appropriate advice and prioritise the interests of clients), but better outcomes are not, and should
not be, a requirement of the duty.
[Notes: This principle is consistent with the legislative intent expressed by Minister Shorten in his second
reading speech to the Corporations Amendment (Further Future of Financial Advice) Bill, (which is also
quoted by ASIC in its draft guidance):
“The best interests duty is a legislative requirement to ensure the processes and motivations of
financial advisers are focused on what is best for their clients. It is true that this will ultimately
lead to better advice in many cases, but first and foremost it is about regulating conflicts, not
the intrinsic quality of the advice provided.”
However, there is a tension between this view and the following statement in ASIC’s draft guidance
(Proposal B1, at paragraph 43):
‘. . . we expect that the processes for an advice provider to follow in acting in the best interests
of their client will result in the client being in a better position, if the client acts on the advice
provided.’ (emphasis added)
There are a number of other comments in ASIC’s draft guidance (on the best interests duty and scaled
advice) which indicate that ASIC has expectations in relation to advice outcomes as well as advice
processes:
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




paragraph 44, ‘Nor do we propose to examine the quality of advice, or the advice provider’s
conduct, only by reference to the outcome that is later achieved by the client as a result of
following the advice.’
RG175.A17 ‘When considering whether to take administrative or enforcement action, we will
give weight to whether, based on the circumstances at the time the advice was given, it was
reasonable for the advice provider to believe that the advice would be likely to leave the client
in a better position.’
RG 175.A28 ‘if a reasonable person would not think the advice would be likely to leave the client
in a better position, it is difficult to see how the advice provider is acting in the best interests of
the client.’
RG175.A29 ‘The client is not in a better position if the improvement is trivial or has no value to
the client, taking into account the subject matter of advice sought by the client: see Example 1.’
CP 182, paragraph 48, We propose that it would be reasonable to conclude that advice is
appropriate if: …
(b) following the advice is likely to leave the client in a better position.’

ASIC has also commented (at RG 175.A30) that the idea of ‘leaving the client in a better position
is not necessarily confined to a monetary improvement, but can encompass such things as a
client’s preparedness for the future, susceptibility to risk or having access to certain product
features or services. Not all clients will seek financial advice to improve their financial situation
Recommendation
The FSC submits the concept of “better position” is not found in the relevant provisions and its inclusion
in the proposed RG confuses the clear intent of the legislation and has the potential to cause confusion
and uncertainty in its practical operation. Further, as outlined later in this response, the addition of this
test of “better position” will increase industry costs, which ultimately must be passes on to the
consumer of the advice.
The best interests test can not be viewed in isolation
1.
The best interests duty cannot be viewed in isolation as an abstract requirement. The following
sub-principles are relevant:
The duty must be considered in context and in all the circumstances in which the financial
product advice is given. These include without limitation:
o
o
o
o
2.
the client’s instructions generally and within those instructions any limitations to the
scope of the advice requested;
what the client can afford in terms of the advice requested;
the best interests duty is an overriding obligation which countermands the client’s
instructions. If the client’s instructions would not result in satisfaction of the adviser’s
other duties, such as the duty to give appropriate advice, this could affect the
adviser’s response;
the scope of the advice which flows from the client’s instructions including any
revision to the scope of advice following any changes to the client’s instructions as a
result of dialogue with the adviser.
What is involved in complying with the best interests duty will vary on a case-by-case basis;
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3.
The scope of the advice will be determined by client instructions but also by the adviser’s
overriding duty to give appropriate advice and to give priority to the client’s interests. It follows
that the instructions given by the client are capable of being revised.
[Notes:


CP183 Paragraph 71: ‘Either you or your client can suggest limiting the scope of your advice’.
CP183 Paragraph 72: ‘In addition, an advice provider should not limit the scope of their advice in
a way that is inconsistent with the client’s relevant circumstances, or that will result in advice
that is not in the client’s best interests.’]
Best Interest duty is a stand alone duty
The best interests duty in section 961B is a single stand-alone duty notwithstanding that:


other duties are imposed by Division 2 of Part 7.7A (entitled ‘best interests duty’). These include
the duty to give appropriate advice and the duty of priority;
other duties may be imposed by law such as:
o the duty of care under tort law;
o contractual duty including ‘a duty of good faith’.
Recommendation
It follows that the ambit of the best interests duty must be considered separately8 from these other
duties, although the interplay of these duties will be relevant to the conduct of the adviser.
The best interests duty is not about cost
Recommendation
The best interests duty is not concerned solely with the cost of the financial product but rather by other
factors which would be relevant to the client’s interests.
[Notes: this principle contrasts with RG 175A143, Example 16: Scenario
‘An advice provider determines that it would be appropriate under s961G to recommend that
their client acquire interests in one of two different managed investment schemes. These
products are identical except that one product has slightly higher ongoing fees than the other
product. The responsible entity of the product with the higher fees is a related party of the
advice provider’s AFS licensee.
Commentary
To comply with the conflicts priority rule, the advice provider should recommend that the client
acquire interests in the managed investment scheme that has the lower ongoing fees. This is
what an advice provider without a conflict of interests would do. Of the two products, acquiring
8
Note: See paragraph 30: ‘We will administer the best interests duty and related obligations in light of other obligations that apply to AFS
Licensees and their representatives. These obligations include . . . [list of obligations from various sources, including common law, contractual,
industry codes and regulatory].
P a g e | 13
interests in the scheme with the lower ongoing fees prioritises the interests of the client over
the interests of the related party of the advice provider.’]
Priority duty
The FSC agrees that where an adviser knows there is a conflict between the interests of the client and
the interests of the adviser or a related party, that the adviser is legally obligated to prioritise the
interests of the client.
Recommendation
The FSC would appreciate ASIC including in RG175 guidance to the effect that a narrow or limited APL
does not fall foul of the conflicts priority rule, provided there is a product solution on that APL that
meets the client’s needs and enables the adviser to fulfill their duty to provide advice that is
appropriate.
The FSC notes that the legislation excludes the application of the conflicts priority rule if the subject
matter of the advice is a basic banking product or general insurance product. Whilst this exemption was
justified in the EM on the basis that these products are simple in nature and more widely understood by
consumers, this does not in any way obviate the existence of a conflict of interest between the adviser
and the client. Therefore, the FSC submits that the exemption must in part be based on the assumption
that these products are generally sold via advisers that are clearly associated with the product issuer,
and therefore any conflict is made clear before an advice relationship even begins. For example, a client
in a Bank 1 branch would not expect to receive advice about Bank 2 banking deposit product. On that
basis, there should be a similar presumption in respect of other classes of financial products sold by
advisers or related parties that are clearly identified as related parties of the product issuer, provided
that the advice is appropriate for the client. For example, a client in an ABC branded financial planning
practice that only advises in respect of financial products issued by ABC product issuer should not be
deemed to have a conflict of interest between the interests of their client and the interests of a related
party, simply because the APL is limited to products issued by a particular product issuer(s). Equally, a
client seeking intra-fund advice does not expect to receive advice about superannuation products other
than those issued by that product issuer.
Recommendation
The FSC respectfully requests that ASIC consider how the best interest duty will apply to advise
providers either employed by or under an arrangement with a superannuation fund (intra-fund advice)
given that MySuper Tranche III Bill is currently before Parliament and seeks to permit the trustee the
ability to charge members for the advice (either as a “administration fee” or a “advice fee” terms
defined in that Bill). Given the best interest and related obligations apply to all advice providers
including intra-fund advice providers, ASIC’s interpretation of limited APLs and the priority rules appears
to prohibit those adviser from receiving the pay for their services (even if it’s not conflicted
remuneration).
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4.
The Approved Product List
The FSC acknowledges that neither FSR nor FoFA legally require an advice AFSL to implement an
Approved Product List (APL). However, both laws require the licensee (FSR) and now the adviser also
(FoFA) to conduct a reasonable investigation into financial products. An approved product list is an
important tool in managing the licensee’s and adviser’s obligation, from the prospective of both risk
management and efficiency. An appropriate approved product list may enable a licensee to provide
support to its representatives as it enables advisers to leverage the expertise of the licensee in analysing
and assessing the vast array of financial products that are available9.
An adviser may discharge their obligations to their client by:
 ensuring the licensee has a reasonable and appropriate process/policy to develop and review
the approved product list;
 ensuring the approved product list suits the market the adviser targets and the advice offering
the adviser holds themselves out as providing (for example: the adviser may market themselves
as:
o risk only advisers; or
o align with a vertically integrated group that only recommends in-house products;
o as a representative of a bank with a bank only APL or a representative of a super fund
which only advises on that one super fund); and
 that the licensee/adviser has in place a suitable approval process for situations where the
adviser has exercised their professional judgment and determined that either there is no
suitable product on the APL, or the client’s existing product is not on the APL, and they need to
advise in respect of that product.10
ASIC’s limited views on the matter of an “approved product list” are noted in paragraphs RG175.102106. We are concerned with the guidance proposed as it appears to discount the benefits of a well
researched and developed Approved Product List for consumers.
We submit that the updated RG175 could include recognition that an APL is a useful risk management
tool which a licensee can use to meet their obligations under s961L and support representatives in
meeting their obligations, under the best interests duty. Importantly, the FSC believes use of an APL
assists to improve the quality, accessibility and affordability of financial advice:



9
Quality – APLs allow advice licensees to support high quality advice through robust and
regularly updated market research. Advice providers can then become familiar with a range of
financial products and develop well reasoned financial advice.
Accessibility – APLs present detailed information in a consistent format for advice providers to
access. This helps to reduce the time taken to research the market, which in turn increases the
speed of advice provision and, in turn, the accessibility of financial advice.
Affordability – Financial product research can be costly and time consuming. An APL helps to
reduce the costs associated with financial product research by centralising research and
allowing the base research costs to be spread across a larger number of clients
In accordance with RG175.A106
In accordance with RG175.A103(a)
10
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The use of an APL balances the need for reasonable research of current quality solution(s) available for
target consumer markets and the cost of the advice for consumers. Where used properly, the use of an
APL does not mean that an adviser does not exercise any judgment in determining if a product on their
licensee’s APL is appropriate for their client’s needs, but rather, if the process is well managed, can
operate as an efficient pragmatic risk management tool that can provide an additional layer of research
and analysis to enhance the quality of advice that advisers can offer. Ultimately APLs can also make
advice more affordable
We agree with the two examples set out at RG 175.A103 as to when an adviser would be required to
investigate and consider a product that is not on their APL, and believe that the requirement to go off
the APL should be confined to these situations. We submit that paragraph (b) of RG 175.A98 should be
deleted, as it creates too much uncertainty, and is not supported by the examples in RG 175.A103.
Recommendation
The FSC submits that a narrow APL is possible and welcome guidance from ASIC on when a narrow APL
may be appropriate (for example depending on the advice business the licensee/adviser hold
themselves out as carrying and/or to suit an appropriate target market subject to for example
RG175.A130(a)).
The FSC notes the following remarks contained in the FoFA EM which acknowledges the use of APLs and
the possibility of a narrow APL:
“1.41 A reasonable investigation into financial products does not require an investigation into
every product that is available on the market, given that in many cases this would be
impracticable and costly. The provider is required to scope their product selection based in the
ends and objectives of their client. The provider is expected to exercise professional judgment to
determine whether this requires going beyond the provider’s approved product list (if the
provider operates using such a list). This is will ultimately depend of the nature and range of
product on their approved product list and the needs and objectives of their specific client.
Additionally, providers should investigate any specific financial products the client requires be
considered, [Schedule 1, item 23, Division 2, section 961D]”
As to when a provider is expected to go beyond the APL, the EM states it will depend on the nature of
the product. For which types of products does ASIC believe it is okay to have only a narrow APL which
generally the provider would not be expected to go beyond? Similarly the EM states it will depend on
the range of products on the APL. What would ASIC consider is generally an appropriate range of
products?
Where a limited APL is disclosed to the client, so that it is very clear that only in house products are
being considered under the advice, and the client only wants in house products considered as part of
the advice, what is ASIC’s view on whether a provider can meet their obligations under the best
interests duty (and in particular s961B(2)(e)) in the situation where the provider only considers and
provides advice on in house financial products.
P a g e | 16
Further,
“1.73 For example, in the context of the best interests obligations, in order to take reasonable
steps to ensure compliance a licensee would be expected to explain to providers that they are
obligated not to recommend a product from an approved product list if there is no product on
the list that would meet the needs and objectives of the client. Further, licensees will need to
take positive steps to ensure that providers do comply with this (for example, through periodic
audits of advice given to clients).”
Also:
“1.74 Determining whether there is no product on the approved product list that would meet
the objectives and needs of the client will be based on the provider’s professional judgment,
once the provider meets the client and understands the client’s needs and objectives. As the
licensee often does not have direct contact with the client, the licensee cannot be expected to
make this determination. However, the narrower an approved product list constructed by a
licensee is, the more likely it is that its providers will not be able to recommend a product from
that list. This means that it is in the interests of the licensee to construct approved product
lists that are suited to their target clients. (emphasis added)”
Recommendation
Guidance from ASIC on how the adviser can comply with the best interests duties when using an APL
would be appreciated, particularly where the adviser operates under the following business models.
Alternatively, confirmation of how ASIC may treat these models differently would be appreciated:
 intra-fund advice model (one product on the APL);
 brand/ provider limited APL;
 product class limited APL (i.e. risk insurance only); and/or
 Open architecture APL (very broad APL).
P a g e | 17
2.
DETAILED SUBMISSION
A.
Detailed comments regarding the proposed RG175 Update
RG Reference
RG175.A1
Comments
Given A1 is an introduction to the RG, The FSC suggests the first sentence of this
paragraph be amended to simply read “Personal advice, by its nature, is generally
relied on by retail clients.”
The remainder of the sentence is language which is no longer appropriate given the
ban on conflicted remuneration (FoFA) and the codification of built in advice fees
into the product administration fees (MySuper).
Note: RG 175.A1 ignores the position of superannuation funds who are deemed to
be retail clients-they may in fact be quite sophisticated.
RG175.A2
RG175.A10
RG175.A11
The FSC welcomes and notes ASIC’s pragmatic position re: the application of Part
7.7A viz a viz s945A and B during the transition period before the mandatory start
date of 1 July 2013.
The FSC notes that there is a timing issue re Ss 945A and B.
In summary the current know your client obligations under sections 945A and 945B of the
Corporations Act 2001 are repealed on 1 July 2012 but the new best interests
duty obligations do not commence until the licensee's Application Day;
 Section 1527 provides that the best interests obligations and the repeal of Ss
945A and 945B apply to a licensee and its representatives from the Application
Day; this does not affect the repeal of Ss 945A and 945B. The repeal which
occurs separately under item 6 and clause 2(1) of the second FOFA bill on 1 July
2012. Accordingly, without ASIC’s guidance, it was unclear how ASIC would
interpret and enforce this matter (that is whether the existing KYC rules apply
to the provision of personal advice to retail clients after 1 July 2012).
RG175.A12
RG175.A13
RG175.A14
The FSC recommends that ASIC needs to note this uncertainty and pursue
clarification amendments with Treasury and Government (despite ASIC in para 12
taking the view that Ss 945A and 945B continue to apply).
This guidance could acknowledge the need to balance the three objectives of
quality, affordability and accessibility. The FSC believes that ASIC’s guidance is
crucial in ensuring that the aim of improved financial advice is achieved without
unduly reducing the affordability or accessibility of financial advice. Recognition of
the intention to balance the three aims would be welcomed.
We submit the basic policy principles of FoFA as announced by the government are:
-
“Financial advice must be in the client’s best interest – distortions to
remuneration , which misalign the best interests of the client and the
P a g e | 18
-
adviser, should be minimized; and
In minimizing these distortions, financial advice should not be out of reach
of those who would benefit from it11.”
Whilst we do not disagree that the reforms are intended to raise the bar on the
advice provided by advisers thus ideally enhancing trust and confidence financial
advice. The FSC submits that access to affordable advice plays an equally role to
non-conflicted advice in the clients best interests.
We are concerned that the proposals in this paper will add to the cost of providing
personal advice, thereby restricting the number of Australians’ access to advice
provided by FoFA compliant financial advisers (as opposed to intra-fund advisers).
Please see comments at RG175.A17 in respect of leaving clients in a better position.
Both RG 175.A14(d) and RG 175.A170.A21 develop the concept of leaving the client
in a better position which the FSC submits is an outcomes test approach.
RG175.A15
RG175.A16
RG175.A17
If common law duties will shape how ASIC administers the BID and Corps Act
requirements, then ASIC should set out its understanding of and position on the
legal principles applying to these common law duties. Similarly, if certain relevant
industry codes and standards will be applied, ASIC should set out clearly what these
codes and standards are and provide details on which provisions will be applied.
In this paragraph, unlike most others, the reference to leaving clients in a better
position is qualified by whether it was reasonable for the advice provider to believe
that the advice would be likely to leave the client in a better position. These are
important qualifications, which are not applied throughout the remainder of the
paper. We do not consider it appropriate to refer to leaving clients in a better
position without putting this concept in context.
Importantly, the FSC does not believe “leaving the client in a better position” is the
appropriate test for the best interests duty.
RG175.A17 ignores:
 the fact that in some instances the best advice may be for the client to
remain in the same position.
 that the scope and extent of the advice may have been legitimately limited
by the client and the adviser, ie, “scaled”; and
 Implies that all things are constant and equal e.g. markets. R175.A27 also
continues this approach by stating.. will result in the client being in a better
position
RG175.A18
RG175.A19
11
As outlined above, we are concerned that the concept of ‘leaving client’s in a better
position’ is being used as the measure for whether the best interest duty has been
met which we believe to be a process based rather than an outcome’s based duty
Future of Financial Advice Information Pack 26 April 2010, pg 2
P a g e | 19
RG175.A20
The FSC would value guidance and/or examples of what it considers to be trivial or
what ASIC considers may be ‘trivial or no value benefit’s.
The word “necessarily” implies that in many or most cases, “better position” can be
confined to a monetary improvement. In many circumstances “likelihood of
monetary improvement” is not a test that can rigidly be applied. For example,
when advising on the purchase of insurance the client will often be in a better
overall position if advised to purchase a higher cost, better quality insurance
product.
Care should be taken to avoid the suggestion that the test will lead to a particular
conclusion in certain circumstances, since a client’s circumstances are inevitably
more complicated than will appear in any RG illustration. For this reason, suggest
“susceptibility to or willingness to take risk”, and “improvements that have no
material value to the client” rather than the words as they appear.
Please also see comments in RG175.A28 for concerns regarding Example 1 and
suggested wording change to “if the improvement has little value to that client”.
RG175.A21
RG175.A22
RG175.A23
RG175.A24
RG175.A25
RG175.A26
RG175.A27
Agree with the features. It would be helpful if ASIC provides additional examples of
financial advice that incorporates the features described.
As the principles of good advice referred to here are contained within a Report and
not in an ASIC Regulatory Guide, it would be helpful if ASIC included the principles
within the updated RG 175 instead of just referring to the Report.
There appears to be an inconsistency with the Minister’s objectives “…first and
foremost it [the best interests duty] is about regulating conflicts, not the intrinsic
quality of the advice provided”, and ASIC’s comments at RG175.A22 that complying
with the best interests duty is important to ensure clients are provided with good
quality financial advice. We consider this indicative of ASIC’s objective to define a
benchmark for quality advice. Whilst we can appreciate the value ASIC’s shadow
Shopper research highlighted to improve what ASIC sees as quality advice (that is
conduct above the law), we are firmly of the view that standard setting should be
properly left to industry bodies, via professional codes and standards of conduct –
and not to this ASIC guidance on how to interpret and effect these new FoFA legal
requirements.
There is almost no circumstance where the result of financial advice can be
guaranteed, as outcomes are affected by both client circumstances and external
circumstances (markets, interest rates) that cannot be predicted with certainty. The
test at the time the advice is provided can never be based on the actual outcome,
but only on what could reasonably be thought likely, using reasonable assumptions,
and what is known at the time the advice is provided
We are concerned that ASIC are introducing a new concept which does not appear
to have a legal basis under the duties comprising the best interests duties and which
not only far exceeds the legal tests but also make compliance with them difficult
P a g e | 20
and very uncertain. It is potentially dangerous and open to abuse to create
obligations that seeks to assess past behaviours and beliefs according to whether a
particular outcome of those behaviours was likely in a future that, at the time was
unknown and unpredictable, but which will be known at the time of assessment.
It is also one thing to look at whether the advice provider believed at the time that
the advice would be likely to leave the client in a better position (though this test is
itself problematic and not supported), but it is another thing to:
a)
b)
ask what a reasonable person would have believed was likely, with the
benefit of hindsight; and
require that the advice in fact resulted in the client being in a better
position if the client acted on the advice provided. RG175.A27 sets out
ASIC’s expectations that the client will in fact be in a better position as a
result of having acted on the advice and RG175.A29 refers to the
measurement being an actual outcome (eg “if the improvement is trivial”)
as opposed to beliefs of the adviser at the time the advice was given.
The difference between the tests highlighted above is significant and while we do
not agree with the introduction of any outcomes based tests, it is crucial that ASIC
make its guidance and expectations consistent and clear as currently there are
inconsistencies throughout CP182.
It is important that ASIC’s policy guidance should not encourage subsequent
pernicious claims by clients based on actual outcomes rather than unforeseeable
outcomes and what was reasonable at the time the advice was provided. There are
many examples in the RG where it shifts to what appears to be an actual outcomes
based test as opposed to a process based test.
FSC recommends that the second sentence in this paragraph be deleted.
Alternatively, if language referencing “better position” remain, the FSC recommends
that the phrase change from “will result” to “will be likely to result”.
RG175.A28
RG175.A29
The wording “if the improvement is trivial” presumes that this is an objective test
and a test that is measured according to the actual outcome (as opposed to what
outcome was believed likely at the time the advice was provided.
The materiality of the improvement depends on the client’s circumstances. For
instance, consolidated and easy to understand reporting may be very important to a
self-directed client who wants to get initial advice, and then wants to minimize
ongoing accounting and financial planning costs. It may also be very important to a
client who has complex financial circumstances, and wants to be able to monitor
these. This guidance could be improved with the wording “if the improvement has
little value to that client”.
In respect of Example 1, the client may not want a high touch relationship (ie
regular contact) with their planner. For this client accessibility and or ease of
reporting format may be more important and therefore, despite that the platform
P a g e | 21
with the better reporting is more expensive, this recommendation may be in the
client’s best interest.
Without amendments to the example, we consider that in the absence of a stated
or known desire for the cheapest platform, the adviser will have provided
appropriate advice.
RG175.A30
Alternatively example 1 should include the words “The client places little value on
the nature of the reporting” or include clarification in the example that the client is
not looking for ease of quality reporting and has expressed they wish to reduce
(product) fees as part of their objectives.
The FSC acknowledges and welcomes ASIC clarification that the “better position”
test is not limited to a monetary improvement.
The FSC would prefer that the term and test of “better position” were not used.
Rather the focus should be on what the legislation actually requires. If we are to
adopt in an RG broad and general language then a more useful test maybe one
which looks at whether objectively the advice was relevant and appropriate having
regard to the client’s known circumstances or which should have been known to the
adviser at the time of giving the advice.
Further, we note example 2 provided does not provide the necessary guidance to
enable an advice provider to determine what other steps the adviser ought to do to
demonstrate and prove that the client is in a better position – they highlight that
the adviser provided the advice the client sort.
It might be helpful to have an example which includes more complex factors. For
example, how does ASIC expect the best interests duty to apply to a client with an
aggressive risk profile? Assume the adviser is dealing with a client who has a long
timeframe and good financial position and wishes to take a high level of investment
risk in order to have the potential for higher returns. Does ASIC agree that in this
case, it would be in the client’s best interests to recommend a high risk strategy? If
yes, how does the licensee satisfy a requirement that the client is “likely to be in a
better position”? If no, how does this client get the advice they want?
RG175.A31
RG175.A32
As for .A30.
The FSC would welcome ASIC providing guidance/statement confirming that the
client is in a better position because the advice provider has helped them to identify
realistic goals, based on their relevant circumstance.
As outlined previously, we are concerned that the Best interest duty, as a legal
requirement, is being assessed by introduction of a non-legal requirement of
‘leaving the client in a better position’ which is not required under legislation. The
measure also seems to be an outcomes based rather than a process based measure.
We would be concerned if ASIC was going to consider ‘leaving the client client in a
better position as a relevant policy principle not only for best interest duty but also
considering whether to take administrative or enforcement action.’ Instead, we
P a g e | 22
RG175.A33
RG175.A34
believe that meeting the best interest duty and related obligations in Div 2 of Pt
7.7A in and of themselves, should guide administration of whether to take relevant
administrative or enforcement action.
This guidance is useful, outlining the expectation that there will be processes in
place for complying with the best interest duty.
The FSC welcomes ASIC’s guidance on the process in this subsection.
With respect to the example, we are are concerned that the commentary seems to
imply that the only reasonable recommendation to make is to dedicate all surplus
funds to repay the mortgage and, as such, ASIC is indicating a predetermined view
of what constitutes best interests advice. This particular advice may well be the
strategy most likely to leave the client in a better position, and it should be put to
the client as an option, but circumstances vary and it should not be assumed that in
every case this is the only option that can be recommended.
The FSC submits there are a number of concerns with Example 4 to illustrate the
guidance. Each advice situation will be different, depending on the facts. To assist
advise providers to understand ASIC’s request for “evidence” considered by the
adviser. For example – should the adviser provide the client with a myriad of wealth
accumulations strategies both non-product and product execution strategies to
meet ASIC’s expectations with regards to the best interests duty? If so, how many
and in what form will these options need to be demonstrated considering the
balance of cost to the consumer versus onus of proof of compliance? Can the
adviser simply discuss the range of options available to the client, verbally, and let
the client choose (verbally) which option to provide to the client in more detail ie
can the client narrow the scope of the strategic options? If yes, how will the adviser
provide evidence to satisfy ASIC? Would the client have to sign something to
provide evidence that they have had options presented to them and they chose
which to progress in more detail?
Further, we note that salary sacrifice is not a non-product specific solution, as it
involves contributions to an existing, or new, financial product.
RG175.A35
RG175.A36
We acknowledge and agree with ASIC that acting in the client’s best interests does
not mean proving perfect advice.
Section 951J creates a duty to give priority to the client’s interests in a situation of
conflict. It would be useful if ASIC could expand the wording in the second sentence
to reflect this, eg ‘have an obligation to prioritise the interests of the client over
their own interests, or those of some of their related parties in a situation of
conflict: s961J’.
It is difficult to envisage situations in which the best interests duty has been
complied with and where the duty of priority has not. The Regulatory Guide would
benefit from the inclusion of an industry-based example of where an advice
provider complies with the best interests duty and provides appropriate advice, yet
fails to comply with the duty of priority.
P a g e | 23
RG175.A37
RG175.A38
In our view, the use of ‘only’ in this paragraph suggests that outcomes will be
assessed in determining whether the advice was appropriate, and the adviser
complied with the best interests duty. This is inappropriate and inconsistent with
the Minister’s position that the duty is to ensure the processes and motivations of
financial advisers are appropriate. This guidance should soley focus on what
occurred at the time the advice was given, and should explicitly avoid retrospective
outcomes testing.
The FSC recommends that “only” should be deleted from this paragraph. In this
context, we think it is important not to link fees payable for advice with
performance related outcomes.
RG175.A39
RG175.A40
RG175.A41
RG175.A42
RG175.A43
RG175.A44
The last sentence of this paragraph should be deleted. Unless the adviser is unable
to provide advice due to a lack of expertise, it may be not feasible and/or
appropriate for them to recommend an alternative provider where they have
declined due to the subject matter/scope of advice being sought by the client.
Where a referral is made due to lack of expertise, the referring adviser should not
be prohibited from providing advice to the client in accordance with the agreed
scope. Example G in CP 183 seems to suggest that if the client elects not to adopt a
recommendation to seek further advice, then the referring adviser should decline to
provide the advice. We consider that this is a matter for the client to decide, and
that provided the adviser has warned the client of the risks of not getting the other
advice, they can continue to provide the agreed advice.
We welcome ASIC’s clarification that the ‘safe harbour’ provisions set out in
s961B(2) are not the only way for satisfying the Best Interest Duty s961B(1).
We would welcome ASIC’s view on how else (separate to the safe harbor provisions)
the Best Interest duty can be met by providing further detail and clarification on this
point. An illustrative example may also be beneficial (example where someone has
met the best interest duty without satisfying the safe harbor provisions).
The comments (from the EM para 1.25) providing in this paragraph seems to
contradict the comments outlined in RG 175.A42 that showing all of the elements in
s961B(2) is not the only way for satisfying the duty in s961B(1).
No advice provider can carry out a step that “would, at a minimum, produce at least
as favourable a result for the client” as an alternative recommendation, because no
advice provider can guarantee an outcome. This sentence should read “or other
steps that would, at a minimum, are likely to produce at least as favourable a
result…”
However we are concerned that this test is too focused on outcomes rather than
process. What is meant by ‘result’? Does this refer to financial performance? If an
adviser chooses not to rely on the safe harbor provisions, how can the adviser
assess the result or even likely result at the time of providing advice?
RG175.A45
P a g e | 24
RG175.A46
RG175.A47
RG175.A48
RG175.A49
RG175.A50
RG175.A51
RG175.A52
RG175.A53
RG175.A59
RG175.A60
It would be helpful if ASIC confirmed here that their interpretation is that a
contractor can act as an agent of more than one ADI and that a person may be an
employee of an ADI and also a contracted agent of another ADI.
We request that the safe harbor include a step (or guidance) where the advice
provided is in line with the agreed scope of advice.
We are interested in how an advice provider might demonstrate compliance with
this guidance. Does ASIC expect the existing clients to confirm in writing on an
annual basis that their goals and objectives remain the same?
Does example 5 suggest that the relief in Class Order 05/1122 no longer applies to
generic financial calculators? How is it clear to the client that they have received
personal advice (noting that CP183 states that a provider can use and tailor
information received from the client and be deemed to be providing general advice
see CP183 para 46-53 but in particular para 52 and 53)? What is it about the
financial calculator that makes it clear to the client that they are receiving personal
advice?
Is ASIC intending to use example 5 to implies that all computer generated advice
and calculators result in personal advice?
For example – (re example 5) if the calculator basically projects potential retirement
outcomes based on the client’s account balance and various return scenarios, is this
calculator providing personal advice and therefore the best interest and related
duties apply? If so, this interpretation contradicts CP183’s guidance on what’s
general and personal advice.
RG175.A61
RG175.A62
RG175.A63
RG175.A64
RG175.A65
RG175.A66
RG175.A67
Client experience and sophistication should be added to the factors that are
relevant in identifying the subject matter/scope of the advice.
In communicating and confirming the scope of advice, we anticipate that the
method of obtaining such confirmation is scalable and adaptable to the type of
advice being provided, and the method of delivery. For example, it may be
appropriate to confirm the scope of the advice orally, and document that in a file
note, and then set put the scope in the SOA. In other instances, where a ‘terms of
engagement’ type document is being used, it would be appropriate to confirm the
scope in writing prior to the SOA being provided.
Whilst we agree that the advice provided must be appropriate, we consider that it
must be open to the client to determine the final scope of advice to be provided. If
the client wishes to exclude consideration of a particular matter, despite the advice
provider explaining the risks and possible consequences of this, then provided the
P a g e | 25
advice provider can still provide appropriate advice within the scope determined by
the client, the advice provider should not have to provide broader advice than that
which the client has sought, and for which the client is prepared to pay. This view is
reflected in the following paragraph 175.A68, but we consider that A67 should be
amended in light of A68.
RG175.A68
RG175.A69
RG175.A70
RG175.A71
RG175.A72
RG175.A73
RG175.A74
RG175.A85
RG175.A86
RG175.A93
RG175.A94
It would be helpful to see an example from ASIC of when it expects the provider to
decline to provide advice because it cannot meet the best interests duty due to the
scope being revised as a result of the client not being willing to pay for advice on all
of the topics initially requested. We are concerned that ASIC expects providers to
decline to provide advice in too many situations and that this goes against the
objectives of FoFA to increase accessibility and affordability of advice.
We consider that the proposals in this paragraph go beyond what is required by the
law, and it is not appropriate for ASIC to be setting standards of conduct. We are
also uncertain of the role of a financial counsellor and when this would be more
appropriate and affordable for a client who is seeking financial advice. We consider
that Example 8 is relevant, however, the final sentence should be removed, as this is
not a legal requirement.
In light of the reduced requirements associated with the modified best interests
duty, we would appreciate ASIC’s guidance on the scalability of this guidance. We
consider that in some scaled/limited advice scenario’s (i.e. provision of advice on
general insurance products) it would be possible to provide appropriate advice in
accordance with s961G without generic knowledge of a broad range of financial
products and strategies.
If there is an objective standard imposed in determining which are relevant
circumstances, then is ASIC able to provide these objective standards by which
advisers will be measured? We acknowledge that a list has been provided for
financial products with an investment component, but further guidance would be
helpful for other areas of financial advice.
The affordability and accessibility of financial advice is dependent on the ability to
reasonably limit the scope and scale of advice. The guidance proposed at Example 9
is welcomed aside from the requirement to investigate the clients other debts or
investments suggested in the last sentence.
The client has requested targeted financial advice on a specific product and we do
not consider it would be reasonable for advice providers to consider alternative
products under the circumstances. Consideration of alternative products or
strategies would only be reasonable if the client had requested general advice, not
product specific advice.
This indicates that adviser must investigate product if requested by client-should be
qualified where the adviser does not have the competency to do so and declines?
Where a client is seeking product specific advice, eg if they want to invest $1000
into Australian shares, or a term deposit, it might not be necessary or appropriate to
formulate a strategy first.
P a g e | 26
RG175.A97
These comments indicate that even if an adviser relies on research houses, the adviser remains responsible. This is -correct insofar as it goes but taken literally is an
extension of general law-in terms of exercising reasonable care and performing
obligations as a fiduciary. It would be sufficient if it were reasonable in the
circumstances for an adviser to rely on research provided by a service provider to
the adviser, and the selection and “supervision” of the service provider were
appropriate-see the note to this paragraph.
RG175.A98
As the requirements associated with switching advice were intentionally omitted
from the modified best interests duty, we consider that this guidance should relate
to s961(2)(e) rather than to the general requirements of s961B(2).
We submit that RG175 should include recognition that APLs can be a useful risk
management tool. Further, we submit that a narrow APL is possible and welcome
guidance from ASIC on when a narrow APL may be appropriate (for example in the
case of Intra-fund advice and depending on the advice business the licensee/adviser
hold themselves out as carrying and/or to suit an appropriate target market subject
to for example RG175.A130(a)).
RG175.A106
As to when a provider is expected to go beyond the APL, the EM states it will
depend on the nature of the product. For which types of products does ASIC believe
it is okay to have only a narrow APL which generally the provider would not be
expected to go beyond – is this in the case of intra-fund? Similarly the EM states it
will depend on the range of products on the APL. What would ASIC consider is
generally an appropriate range of products (suitable to the advice model the
provider holds out to offer)?
RG175. A109
RG175.A111
Where a limited APL is disclosed to the client, so that it is very clear that only in
house products are being considered under the advice, and the client only wants in
house products considered as part of the advice, what is ASIC’s view on whether a
provider can meet their obligations under the best interests duty (and in particular
s961B(2)(e)) in this situation where the provider only considers in house financial
products?
This paragraph refers to leaving the client in a better position as previously
discussed. The FSC submits the paragraph be qualified or amended particularly
given that the language used creates confusion where the wording of Corps Law
section s961B(2)(f) is clear.
We consider that the proposals in this paragraph go beyond what is required by the
law. In particular, in RG 175.A111(d) ASIC seem to be reintroducing a requirement
that was part of the exposure draft of the legislation and then removed. Section
961C(2) in the Exposure Draft of the legislation (which became 961B(2) in the tabled
bill re 'safe harbour' steps that an adviser must take) included Part (d) that read:
“(d) where it is reasonably apparent that the client's objectives could be better
achieved, or the client's needs better met, if the client obtained advice on another
subject matter, either in addition to or in substitution for the advice requested,
advising the client in writing;”
P a g e | 27
Part (f) was also removed, and is related to this point, it read:
“(f) assessing whether the client's objectives could be achieved, and needs met,
through means other than the acquisition of financial products;”.
RG175.A124
RG175.A126
If Treasury intended that these steps were required, they would have remained as
specific steps to be taken under s961B(2). However these steps were removed for a
reason and we do not agree that 961B(2)(g) should require an adviser to have to
offer to provide advice on areas that are not part of the scope of the advice.
Example 13 – This example could very well be a factual information example where
the provider is only providing factual information in which case, there would be no
duty on the provider to comply with the best interests duty. Asking a bank branch
teller for information about products and the applicable interest rate should not be
assumed to be a request for personal advice.
Firstly, the FSC queries the addition of paragraphs .A126-.A129. Are these additional
to the switching requirements or a replacement of existing switching duties?
The FSC suggests .A126 be revised to make it clear that lower costs/ higher costs are
not universal determinants of appropriate/inappropriate advice.
RG175.A127
RG175.A129
RG175.A132
RG175.A141 and
RG175.A142
The interaction between this guidance and the modified best interests duty is
unclear. We consider that the modified best interests duty does not require
investigation into the clients existing products before providing financial advice and
it difficult to determine how an advice provider might comply with this guidance
without knowledge of the client’s existing product.
Regarding Example 14: Given the reservations expressed regarding assessing best
interest by leaving the client in a better position, in Example 14 we would suggest
removing the words ‘they would not be left in a better position’ and amend the
phrase as follows; ‘if the client were to act on the advice there would not be any
additional benefits to the client whilst paying increased fees. This would not be in
the best interests of the client.’
In circumstances where the client does not understand the tax implications, a
considerable burden seems to be placed on an adviser, particularly where the
adviser may not be qualified/competent to advise? It would be useful if there were
an acknowledgment that if the adviser has referred the client to the tax expert and
client appears to be comfortable with that expert advice, the adviser will be taken
to have complied with the duty.
Reconciling the information in RG 175.A141 and RG 175.A142 is important. On the
one hand ASIC recognises that information barriers may be created to prevent an
advice provider from becoming aware of any conflicting interests of the advice
provider’s related parties and on the other ASIC notes that using information
barriers to avoid becoming aware of conflicting interest of a related party would
breach s961J if the advice provider should have reasonably known about it.
FSC members would welcome ASIC providing further guidance around examples
which illustrate the obligation ‘advice provider should have reasonably known
P a g e | 28
about it?’ Without further clarification and detail it is unclear whether or not using
an information barrier would inadvertently result in breaching s961J due to the
absence of clarity. Further it is not clear how licensees and providers of advice can
be expected to comply with both a requirement to use information barriers to avoid
becoming aware of a conflict and at the same time comply with disclosure
obligations to disclose benefits and conflicts in a FSG and SoA.
RG175.A143
In complying with the duty of priority, ASIC proposes that advice providers should
be guided by “what an advice provider without a conflict of interest would do”.
Interpreting the duty in this way goes beyond the requirements of the current law,
that is, section 961J does not require an advice provider or licensee to avoid
conflicts. An advice provider can act in their own interests. However, an advice
provider must not prefer their own interests over the client’s interests. In addition,
it is possible for an advice provider to prefer their own interests where they have
obtained the informed consent of the client.
The scenario in example 16 posits an advice provider who has determined to
recommend one of two different managed investment schemes that are identical
save for fees.
The FSC submits it would be helpful for ASIC to clarify how, in this scenario, the
advice provider has come to be selecting between the two products. Logically,
there are three possibilities.
(a)
both products are on the advice provider’s APL;
(b)
the advice provider is comparing the client’s existing product with a
product from the advice provider’s APL; and
(c)
the advice provider has researched all available products in this asset class,
in order to determine whether there is another product similar to the product on
the advice provider’s APL that has lower fees.
As both the Minister and ASIC have stated elsewhere, it is not expected that a
licensee or advice provider or licensee will research every product in the market.
This is impractical and would add prohibitive cost to the giving of advice. We do not
believe ASIC intended that the advice provide the best or perfect advice nor require
the adviser to research the entire market. However the wording of example 16 as it
stands suggests that it may be necessary for an advice provider to research the
entire market, in order not to breach the conflicts priority rule.
We note that paragraphs RG175.A102 – 103 indicate circumstances where an advice
provider may need to make inquiries outside the licensee’s APL, and paragraph
RG175.A106 notes that a licensee must consider whether their APL is supporting
their representatives to comply. None of these paragraphs goes as far as requiring
the advice provider or the licensee to research the entire market in a class of
product. Each of them allows the possibility of an APL limited in a particular
product class to products issued by the licensee's own corporate group, provided
that best interests and related duties can be met.
A possible solution is to clarify the hypothetical benchmark for the conflicts rule -
P a g e | 29
that is, an “advice provider without a conflict of interests”. We suggest this should
be an “advice provider operating within the same approved product list, but
without a conflict of interests”. This description would cover scenarios (a) and (b),
but would not require (c).
A similar issue arises with Example 17, which is dealt with below.
RG175.152-154
We would expect to see further guidance on the interaction of the duty of priority in
s961J and the general duty to manage conflicts of interest including examples of
where ASIC expects that giving priority to a client’s interest means avoiding a
conflict altogether. In what situations might a client agree to a particular conflict?
Or do all conflicts need to be avoided? This is topic is of high importance and
potentially has wide reaching implications so we would appreciate further guidance
on ASIC’s expectations in this area.
RG175.A157
In relation to the giving of scaled advice, we agree that the same rules apply.
However, it should be made clear that, just as it is possible to limit the scope of
fiduciary obligation, the best interests duty in fact can be “scaled down”, in the
sense that the scope and extent of the advice can be limited.
RG175.A160
Could ASIC clarify its expectations of record-keeping for ADI employees giving advice
on basic banking products? Existing RG175.150 notes that the record-keeping
license condition does not apply for personal advice where there is no obligation to
provide a statement of advice. To avoid any confusion, we suggest this note be
carried forward in the post-FOFA RG 175
As with Example 16, this scenario does not make clear which different life insurance
products” the advice provider might have considered, and so implies that the advice
provider may be required to research all life insurance products in the market in
order to comply with the conflicts priority rule.
RG175.A174
Again, we believe this is not intended, but clarification is needed to exclude this
inference. This concern may be overcome by specifying in the example that the
advice provider has not considered “the features of different life insurance products
on the advice provider’s approved list, or (if applicable) the comparable features of
the client’s existing product, in light of the client’s objectives, financial situation and
needs.”
B.
Detailed responses to ASIC’s Questions
B1 We propose to provide guidance on s961B(1). This includes that we expect that the processes for an advice
provider to follow in acting in the best interests of their client will result in the client being in a better position, if
the client acts on the advice provided.
See draft RG 175.A25–RG 175.A44.
B1Q1 Do AFS licensees, authorised representatives and individual advisers need ASIC guidance to assist in
complying with the best interests duty in s961B(1)?
Yes. ASIC states that it is introducing new proposals in its interpretation of the law – see page 4 where ASIC states
“Among other things we would like your feedback on the costs and benefits of implementing our proposed
guidance rather than the costs and benefits of the requirements in Div 2 of Pt 7.7A of the Corporations Act.” Our
understanding of ASIC’s role in providing industry guidance on the best interests duty and related obligations was
that it would assist industry by offering its view on how advisers providers would be expected to comply with the
law. In our view, in terms of CP182, it seems that ASIC expects compliance with a higher standard than the law
requires and particularly, as we have said, by imposing a gloss of a client being in a “better position” as result of the
provision of advice regardless of whether the advice providers is operating under s961B(1) or s961B(2). The FSC
requests clarification of how ASIC will determine the best interest duty has been met. If the “better position” test
only applies to s961B(1) and not s961(B)(2) ASIC has not been clear in this distinction. The FSC does not support
the “better position” test’s application to s961(B)(2). Meeting the steps in s961B(2) should be the test used by ASIC
to determine if the adviser has met the adviser’s obligation with regards to the best interest duty.
B1Q2 Do you agree with our proposed approach to providing guidance on s961B(1)?
The proposed RG is not clear as to how ASIC approaches s961B(1) as opposed to s961(B)(2). Our interpretation of
ASIC’s intent is that the “better position” test applies to both. This submission is written based on that
interpretation.
In particular we are concerned that ASIC would consider examining an advice provider’s conduct or the process the
adviser followed to comply with the best interests duty only by reference to the client outcomes achieved by
following the advice (if only in part) – see para 44 (p17). This approach is outlined in para RG175.A14 on p35 – that
the client (in following the advice) is likely to be left in a better position is a consideration that the law requires
ASIC consider when administering the BID. The FSC submits the compliance test needs to focus on compliance
with the duty not the likely outcomes especially for consideration of undertaking enforcement action (see
RG175.A17 and also RG175.A32). When considering what constitutes “leaving client in a better position” (para
RG175.A20, page 37) ASIC states that a monetary focus is not necessarily the primary focus but then provides an
example where fee levels are the only consideration (example 1 on page 39). We would welcome clarify of this
approach.
In para RG175.A16 ASIC mentions a range of other legal requirements it will consider when administering the best
interests duty. We are uncertain how to interpret ASIC’s guidance and are interested in what weight ASIC will give
P a g e | 31
to these other obligations, given many are extraneous to the best interests duty provisions under the Corporations
Act (e.g. industry codes of conduct, fiduciary duties under SIS etc). How and when will ASIC consider these other
legal requirements when administering the best interests duty? We seek clarity regarding how other legal
obligations impact the administration of the best interests duty.
The proposed guidance especially with regards to the ‘better position’ test is confusing and additional to what the
law stipulates. We are encouraged by some comments in RG175.A37 and .A38. However, we question ASIC’s
interpretation in light of comments made in the revised FoFA EM at para RG175.A37.
B1Q3 Are there any matters, other than those described at draft RG 175.A29–RG 175.A31, that you think would
indicate the client is or is not in a better position as a result of following the advice? Please provide details.
We seek further clarification from ASIC on this point as this is a new requirement (putting the client in a
better position). This requires quite clear definition from the regulator, including what weighting ASIC
will apply to the various components of the definition. It is concerning that the regulator would
introduce a concept such as this and leave it undefined.
B1Q4 Are there any factors, other than those listed at draft RG 175.A34, that you think would suggest that an
advice provider has complied with the best interests duty in s961B(1)?
The FSC suggests that non-product strategies may be considered – see example 4, p.41 which outlines a typical
scenario of paying off mortgage compared with contributing to superannuation. It is interesting that in the
commentary to the example there is a suggestion that as long as the client seeks limited scope advice,
consideration of non-product strategies may not be necessary. This may conflict with the guidance provided in the
scaled advice paper CP183 and CP182s overall approach to best interests.
Some examples suggest that strategic advice is less concerning or may be judged differently to product execution
advice with regards to the best interests duty. The FSC submits that the duty remains the same, especially in light
of the ban on conflicted remuneration and the additional related duties (such as priority duty). We note that
strategic advice may result up with a product execution recommendation and there are very few examples showing
how to demonstrate the best interests duty has been complied in these circumstances.
Further, we ask that ASIC consider providing guidance or examples of how ASIC determines s961B(1) to have been
met by an adviser. Whilst the paper stipulates that showing all the elements in the safe harbour steps are one way
to satisfy the duty in s961B (see RG 175.A42) there are no examples or illustration for how the best interest duty
can be met outside of s961B(2). Further EM paragraph 1.25 states that following the steps in s961B(2) informs how
to interpret complying with s961B(1) implying there is no other interpretation to s961B(1).
B1Q5 Is there any further guidance or examples we should give on s961B(1)? Please provide as much specific
information as possible, as this will assist us to provide further guidance if needed.
We would welcome ASIC’s view on how else (separate to the safe harbor provisions) the best interest duty can be
met by providing further detail and clarification on this point. An illustrative example may also be beneficial
(example where someone has met the best interest duty without satisfying the safe harbor provisions).
See FSC Submission to Consultation Paper 183 Section 2C. Suggested examples To Better Understand Our BID and
Scaled Advice Obligations for a list of examples which may assist the industry with regards to RG175.
P a g e | 32
B1Q6 Will our proposed guidance (as distinct from what is needed to comply with the law) require AFS licensees,
authorised representatives and individual advisers to implement new processes or change existing ones? If so,
please describe the changes and the likely costs involved.
NA
B2 We propose to give guidance on what we expect advice providers to do to meet each element of the safe
harbour for the best interests duty. Among other things, we state in our guidance that what needs to be done
will vary depending on the circumstances, including the objectives, financial situation and needs of the client.
See draft RG 175.A48–RG 175.A113.
B2Q1 Do AFS licensees, authorised representatives and individual advisers need ASIC guidance to assist in
satisfying the safe harbour for the best interests duty?
Much of the discussion in this section relates to identifying the subject matter of the advice and ‘scoping’ advice. It
is unclear why ASIC has chosen to present these issues in two papers which overlap in a number of areas.
On the issue of whether advisers need guidance in assisting them to satisfy the safe harbour for the best interests
duty, given the breadth of the provisions it is essential that ASIC provides some clear certainty and resolution
around its expectations.
B2Q2 Do you agree with our proposed approach to guidance on the safe harbour?
There is some helpful discussion contained in this section but overall ASIC’s approach is unclear and inconsistent,
and overlaps with CP183. ASIC does not clearly state in this CP that the adviser and client can agree on the subject
matter of the advice. The adviser has far greater responsibility in defining the subject matter of the advice (there
is an assumed information asymmetry) unless the discussion turns to how much the client can afford or is willing
to pay for advice. In this case, the client can freely revise the subject matter of the advice based on the cost of the
revised advice.
Our preference is that the client should be able to revise the subject matter of the advice or request a particular
subject matter of advice at the outset irrespective of issues regarding willingness to pay.
We are also concerned that the role Approved Product Lists (APLs) can play to balance the need for affordable
advice and to assist the adviser meet their duties. It is not clear to us whether advice businesses may have APLs
and/or limited APLs. APLs are an important risk tool to ensure advice licensees have undertaken proper research
into the products that advisers recommend. ASIC guidance on an adequate APL viz a viz the advice model is
welcome particularly in light of the view that its perfectly acceptable to provide advice with an APL of 1 in the case
of intra-fund advice. We would also like to see guidance from ASIC regarding its views on limited APLs and how it
interprets the comments in the EM regarding where a provider of advice is required to go beyond an APL will
depend on the nature and range of the APL.
The issue of the APL must also be considered in light of Professional Indemnity (PI) insurance. ASIC’s guidance may
have significant impacts to the cost of PI cover. That is without the ability to implement an APL policy (when to go
off APL and how to do so) and APL itself Professional Indemnity insurers will become cautious for years (whilst the
new duty is tested in the courts) during which time – costs of PI cover will remain high (higher than current costs)
thereby increasing the cost of advice for Australians without any commensurate consumer protection.
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B2Q3 If you are an AFS licensee, authorised representative or individual adviser, in complying with the best
interests duty in s961B(1), will you rely on the safe harbour in s961B(2) or rely on other processes to show you
have complied with the best interests duty?
Given there is no certainty as to how the duty in s961B(1) can be met other than by complying with the steps in
s961(B)(2) many members are likely to comply with s961B(2).
Therefore, a well defined safe-harbour is essential to provide advisers with appropriate certainty around providing
advice in accordance with these provisions.
It would be beneficial if ASIC could provide greater guidance, and examples, as to how it envisages the best
interest duty can be complied with apart from the safe harbour duty.
B2Q4 If you are relying on other processes, please let us know what these processes are.
NA
B2Q5 If you are an AFS licensee, authorised representative or individual adviser, in what circumstances (if any)
do you currently take steps to verify the veracity of information about the client’s relevant circumstances?
Our advice members have indicated that generally they will accept what the client verbally discloses to the
adviser. However, additional verification may occur where a client has an existing external financial product for
example. In such a case an advice member would obtain from the client an authority to release information. The
member than may contact the existing product provider and inquire into existing balance of the account is, the
level if any of insurance attached to the account and raise questions as to the client’s existing products and
relevant costs, features and benefits.
Other examples include credit advice (or gearing) and insurance advice where additional verification may be
conducted.
B2Q6 In what circumstances do you think that the safe harbour for the best interests duty requires an advice
provider to take steps to independently verify the veracity of information about the client’s relevant
circumstances?
NA
B2Q7 Do you currently ascertain the extent to which considering labour standards, or environmental, social or
ethical issues, is relevant to the advice a client is seeking? If so, please provide details on when and how you do
this.
NA.
B2Q8 Do you think we should provide guidance on the extent to which the safe harbour for the best interests
duty requires advice providers to ascertain whether the subject matter of advice sought by the client includes
considering labour standards, or environmental, social or ethical issues?
Note: RG 175.131 currently contains guidance on making inquiries into the client’s attitude towards
environmental, social and ethical considerations.
NA
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B2Q9 Is there any further guidance we should give on how to satisfy the safe harbour for the best interests
duty? Please provide as much specific information as possible, as this will assist us to provide further guidance if
needed.
The FSC submits that the following guidance and/or feedback from ASIC will be helpful:
How will ASIC’s new competency framework for advisers align to the views expressed in RG175.A87-91?
Guidance on the appropriate use of the following requirements and ASIC’s approach to testing these will be
essential:
 Record keeping;
 Use of plain English in documentation;
 Monitoring and supervisions of record keeping to ensure that the advice process was followed correctly
and best interests duty was met;
 How to structure the SoA to demonstrate compliance; and
 The process of researching the APL.
Examples around the following situations would be helpful:
1.
How do you show that you have considered other products outside of the APL?
2.
How do you demonstrate best interests when working within a limited APL? What circumstances would
require you to go outside of this APL?
3.
Scenario where you would recommend using a platform over a direct investment – is this acting in the
client’s best interests? What value do you put on convenience/reporting?
4.
If a platform is in the best interests of the adviser does this also contribute to the best interests of the
client e.g. where the adviser has better visibility/transparency?
5.
How do you ensure you are acting in client’s best interests when they have different levels of
understanding e.g. simple reporting but higher costs could be in the best interests for someone who is a
new to investing but to an experienced investor who may understand complex reporting, reduced costs
may be in their best interests. How do you quantify aspects other than pure cost?
6.
Example of where advice was compliant with best interests but the outcome was not desirable e.g. GFC.
and where client requests advice which is highly speculative or high risk so that the outcome cannot be
reasonably likely to be favorable or better.
7.
Need examples of what ‘any other reasonable step’ (subparagraph ( g)) means. However, the
commentary from para RG175. A110-A113 is generally ok provided it is limited to those steps – see
RG175.A111 (a)-(c). However subpara (d) seems extraneous and obligations similar to this were removed
from the Exposure Draft.
The following comment is supported: para RG175.A114 “…being clear on the scope of the advice provided or the
inquiries an advice provider has made into the client’s relevant circumstances under s961B(2)(b) is not contracting
out because it does not limit the advice provider’s obligations”. This needs to be consistent in CP183.
B2Q10 Will our proposed guidance (as distinct from what is needed to comply with the law) require AFS
licensees, authorised representatives and individual advisers to implement new processes or change existing
ones? If so, please describe the changes and the likely costs involved.
Members have diagrammatically (process mapped) illustrated ASIC’s proposed RG175 as shown in Appendix 1. The
blue processes are those which we interpret as new obligations which do not appear in the law. Each process adds
P a g e | 35
cost and complexity to the advice process and therefore for the consumer. Our analysis (process mapping) to date
shows that the proposed guidance introduces new processes into the advice process which are over and above
those which we would expect to undertake under the legislation. This introduces extra cost to deliver advice.
Members have not had the capacity to accurately cost the changes this guidance proposes. Preliminary
indications are that it will increase the cost to member of between 20-40% on top of implementing best
interest (FoFA) obligations. In training alone, members are indicating costs could increase by $540million dollars to comply with ASICs additional blue processes (see process map).
B3 We propose that it would be reasonable to conclude that advice is appropriate if:
(a) it is fit for its purpose—that is, following the advice is likely to satisfy the client’s relevant circumstances; and
(b) following the advice is likely to leave the client in a better position.
See draft RG 175.A114–RG 175.A133.
B3Q1 Do AFS licensees, authorised representatives and individual advisers need ASIC guidance to assist in
complying with the appropriate advice requirement in s961G?
Yes.
B3Q2 Do you agree with our proposed approach in providing guidance on s961G?
We agree with (a) in para RG175.A116 that the advice should be fit for purpose. This is a useful description of
appropriateness. However, again, we do not agree with (b) that this particular requirement includes an obligation
that the client should be likely to be left in a better position. We would also be concerned if, as ASIC suggests
961G is intended to impose a higher standard of conduct than existing s945A.
ASIC again focus on costs to define its approach to switching. See RG175.A128 “Advice will often be appropriate
under 961G if there are overall cost savings for the client that are likely to override the loss of benefits that are of
value to the client.” Indeed there may be circumstances where it is be appropriate for a client to gain access to
greater benefits.
B3Q3 Is there any further guidance we should give? Please provide as much specific information as possible, as
this will assist us to provide further guidance if needed.
NA
B3Q4 Will our proposed guidance (as distinct from what is needed to comply with the law) require AFS
licensees, authorised representatives and individual advisers to implement new processes or change existing
ones?
Yes. See B2Q10.
P a g e | 36
B4 We propose that, in complying with the obligation in s961J to prioritise the client’s interests, advice providers
should consider what an advice provider without a conflict of interests would do.
See draft RG 175.A138–RG 175.A154.
B4Q1 Do AFS licensees, authorised representatives and individual advisers need ASIC guidance to assist in
complying with the obligation to prioritise the client’s interests in s961J?
Yes.
B4Q2 Do you agree with our proposed approach in providing guidance on s961J?
The examples and overall approach to this section is concerning. Example 16 & 17 on pages 65-66 are not realistic
(and too simplistic). Again example 16 relates purely to fee levels and does not address any other circumstances of
the advice. Example 17 relates to the payment of commissions in life insurance. The adviser does not consider any
other aspect of the product (features etc) and so the concern with the advice is much broader than a
contravention of s961J. The example therefore seems out of place. Similarly example 18 is more an example of
mis-selling rather than over-servicing a client.
Further, we would expect to see further guidance on the interaction of the duty of priority in s961J and the general
duty to manage conflicts of interest including examples of where ASIC expects that giving priority to a client’s
interest means avoiding a conflict altogether. In what situations might a client agree to a particular conflict? Or do
all conflicts need to be avoided? This is topic is of high importance and potentially has wide reaching implications
so we would appreciate further guidance on ASIC’s expectations in this area.
B4Q3 Are there are any other conflicting interests we should list in our guidance?
NA
B4Q4 If you are an AFS licensee or authorised representative, will you be putting information barriers in place to
ensure that your representative advice providers do not become aware of any conflicting interests held by you
or any other of the advice provider’s related parties?
We would expect to see further guidance on the interaction of the duty of priority in s961J and the general duty to
manage conflicts of interest including examples of where ASIC expects that giving priority to a client’s interest
means avoiding a conflict altogether. In what situations might a client agree to a particular conflict? Or do all
conflicts need to be avoided? This is topic is of high importance and potentially has wide reaching implications so
we would appreciate further guidance on ASIC’s expectations in this area.
B4Q5 Is there any further guidance or examples we should give? Please provide as much specific information as
possible, as this will assist us to provide further guidance if needed.
See comments in response to B4Q2.
Reconciling the information in RG 175.A141 and RG 175.A142 is important. On the one hand ASIC recognises that
information barriers may be created to prevent an advice provider from becoming aware of any conflicting
interests of the advice provider’s related parties and on the other ASIC notes that using information barriers to
avoid becoming aware of conflicting interest of a related party would breach s961J if the advice provider should
have reasonably known about it.
FSC members would welcome ASIC providing further guidance around examples which illustrate the obligation
‘advice provider should have reasonably known about it?’ Without further clarification and detail it is unclear
P a g e | 37
whether or not using an information barrier would inadvertently result in breaching s961J due to the absence of
clarity.
See FSC Submission to Consultation Paper 183 Section 2C. Suggested examples To Better Understand Our BID and
Scaled Advice Obligations for a list of examples which may assist the industry with regards to RG175.
B4Q6 Will our proposed guidance (as distinct from what is needed to comply with the law) require AFS
licensees, authorised representatives and individual advisers to implement new processes or change existing
ones? If so, please describe the changes and the likely costs involved.
Yes. See B2Q10.
B5 We propose that our guidance for complying with s961B(2)(a)–(c) will also apply when the modified best
interests duty applies.
See draft RG 175.A45–RG 175.A47, RG 175.A121–RG 175.A125 and RG 175.A150–RG 175.A151.
B5Q1 Do AFS licensees, authorised representatives and individual advisers need ASIC guidance to assist in
complying with the modified best interests duty?
Yes, it would be helpful if ASIC confirmed here that their interpretation is that a contractor can act as an agent of
more than one ADI and that a person may be an employee of an ADI and also a contracted agent of another ADI.
It would also be helpful if ASIC set out their interpretation and application of the requirement that advice be solely
about a basic banking product i.e. does this mean that the same advice provider can provide advice to the same
client about other financial products at a different time? If the client seeks advice on multiple topics, can the
advice about basic banking products be separated from the advice about the other topics so that the modified best
interests duty applies in respect of the basic banking product? It would be helpful if these questions were
addressed.
B5Q2 Do you agree with our proposed approach in providing guidance on the modified best interests duty?
NA
B5Q3 Is there any further guidance we should give? Please provide as much specific information as possible, as
this will assist us to provide further guidance if needed.
As above at B5Q1.
B5Q4 Will our proposed guidance (as distinct from what is needed to comply with the law) require AFS
licensees, authorised representatives and individual advisers to implement new processes or change existing
ones? If so, please describe the changes and the likely costs involved.
NA
The FSC, like the ABA believes that CP 182 and CP 183 have not clearly articulated the distinction between the
modified best interest duty for basic banking and insurance products and the duty for other financial products.
The FSC supports the ABA’s comments with regards to this concern.