There has been some confusing media commentary about the recent changes to FoFA (Future of Financial Advice) reforms. Contrary to reports that the duty to act in the best interests of clients has been watered down, it does in fact remain unchanged.
The six steps to achieve this are:
1. Find out why the client is seeking advice;
2. Identify the objectives, financial situation and needs of the client;
3. Make inquiry to obtain complete and accurate information;
4. Assess whether he or she has the expertise required to provide the client advice and, if not, decline to provide the advice;
5. If recommendation of a financial product is reasonable, investigate which products meet the needs of the client;
6. Base all judgements in advising the client on the client’s relevant circumstances.
The 7th step, which was recently removed and prompted the confusing media reports was a requirement that in addition to the 6 steps above, an adviser must take “any other reasonable step that would be regarded as being in the best interest of the client”. The application of this open-ended catch-all provision created uncertainty and meant that advisers would not be able to confidently provide quality financial advice.
The purpose of the 6 unchanged steps, is to provide certainty to investors that the ‘best interest’ duty to the client will be applied by their adviser. More detailed information can be viewed at Treasury’s Future of Financial Advice website.