No single fiduciary duty solution

The limited nature of the adviser/client relationship with respect to intra-fund advice may make it difficult to impose a uniform interpretation of fiduciary duty, according to Argyle Partnership Lawyers partner June Smith.

As industry representatives continue discussions around the Future of Financial Advice (FOFA) reforms, Smith said the problem with fiduciary duty was that it implied concepts of loyalty, good faith and a “special relationship of trust based on reliance and vulnerability”.

“You don’t always get those elements of a fiduciary relationship in transaction-based advice, in one-off limited advice situations or even in intra-fund advice,” she said.

“If you are going to apply that fiduciary duty across the board, the ‘reasonable steps’ requirement will have to be relevant to all of those scenarios as well. That will be a very difficult thing to do.”

Industry representatives have suggested implementing a general statutory fiduciary duty across the advice realm was likely to prove a complex task due to the wide range of advisers that offer different levels of service.

Financial Planning Association (FPA) chief executive Mark Rantall said one of the issues that the FOFA peak consultation group was grappling with was intra-fund advice and the possibility of providing relief for super fund advisers to enable them to advise on more complex issues, such as transition to retirement.

“We don’t necessarily support that approach, but it’s way too early to call how it will pan out,” said Rantall, although he asserted if that was the case then advisers outside of super should be given the same legislative relief.

Rantall said implementing a fiduciary duty across the different levels of advice would require legislative relief.

“Depending on your advice needs, you might get different types of advice from different types of advisers,” he said. “To give advice in that way, you would need legislative relief.”

He added that the consultation group had not yet got down to the detail of what ‘in the best interests of the client’ would look like, although he asserted that ‘best interests’ could be subjective and therefore the FPA would prefer to see something similar to its ‘client first’ principle form part of the fiduciary duty requirements.

Association of Financial Advisers (AFA) chief executive Richard Klipin said the consultation group had only met once and he was not willing to guess at what the fiduciary duty landscape might look like in the future. However, he said the AFA was keen to ensure that the FOFA reforms, including fiduciary duty, were principles-based and provided a degree of clarity and flexibility for both consumers and advisers, without creating an “administration and compliance nightmare”.

Smith said a fiduciary duty could result in a structural splitting of the industry where different advice models would operate under different compliance requirements, although one of the reasonable steps requirements might simply entail the erection of Chinese walls between advisers and product providers to ensure conflicts of interest were reduced.