FSRA is the beginning of evolution in quality of advice

THE current transition to the new Financial Services Reform (FSR) regime represents only the beginning of an evolution to a new standard, according to senior partner with law firm,The Argyle Partnership, Peter Bobbin.

Bobbin, who will address this week’s convention on the level of preparedness for FSRA, says he believes the evolution to the new regime will begin moving beyond the current line-by-line interpretive approach in March next year when theory will be seriously forced into practice.

He says when that occurs, it will be clear the evolution to the new regime is about much more than simply changing the letters around and that real issues will emerge that will require people to embrace new standards and approaches.

Bobbin says that while the current line-by-line familiarisation and transitioning process is appropriate, financial planners and others operating within the new regime will come to realise that there is much more to the process than first meets the eye.

“When March 11, 2004 arrives, we will be going much further than simply interpreting provisions line-by-line,” Bobbin says.

“What needs to be recognised is that some things are hidden within the new provisions and there are laws here that many people probably don’t even realise exist,” he says.

Bobbin uses as an example Section 951A of the new provisions dealing with the conditions of contracts and says that the intent is clearly open to interpretation.

“What it seems to say is that if you try to contract out of your FSR obligations, then such a contract will be void, but that is something that will no doubt be tested on implementation,” he says.

However, Bobbin suggests that Section 951A will ensure that financial planners can’t use fancy disclaimers or caveats to reduce their exposure to FSR.

What Bobbin does emphasise is that quality and standards will have to rise — something being reinforced by shadow shopping exercises and theFPA’s quality of advice concept.

He says that while theAustralian Securities and Investments Commission(ASIC) has given its interpretation of what a statement of advice should contain, he believes that, ultimately, the quality of advice will go well beyond what FSR actually asks for.

“Advice will need to be clear, concise and effective, and financial planners will be well advised to err on the side of the client because, ultimately, we are dealing with consumer protection legislation,” Bobbin says.

He says advisers will need to ensure their clients understand what they are being told, and cites the various interpretations that can be ascribed to ‘gearing’, ‘negative gearing’ and ‘margin lending’.

Bobbin says while negative gearing can be described as a “tax-effective investment technique”, it might equally be described as a “tax-effective way to lose money”.

The need for clear, concise and effective advice is something that has been emphasised by the compliance manager for Integratec and former ASIC senior investigator, Peter Cashel.

Speaking at a recent Sydney seminar, Cashel emphasised that clients need advice that is appropriate.

“Advice to a client cannot be limited, it must be detailed and appropriate given the client’s personal objectives, needs and financial situation,” he said.

He said advice is appropriate if it is fit for its purpose in that it satisfies the client’s personal circumstances.

“The best advice is not required, only advice that is appropriate to the client’s personal circumstances.”