Opt-in could clash with current law
Legal experts believe the Government’s proposed opt-in reform will be challenged due to a potential clash with current contract law.
If introduced, experts claim the opt-in reform has the potential to override any binding contractual agreement that financial planners might seek to make with clients.
So far, the financial planning industry has shown little support for the proposal, which would require clients to annually opt-in for the services of their financial planner.
Principal of Innoinvest Consulting, Su-King Hii, said it could be argued that opt-in was inconsistent with the principles of contract law, and that “in many cases it might not be in the best interests of the client”.
“Opting in each year, depending on what the client and the adviser agree on, may constitute a variation of the initial agreement,” said Hii.
Financial Planning Association (FPA) deputy chief Deen Sanders said the FPA was currently using this argument in its discussions with the Government, while also reinforcing the argument about the administrative and cost burdens the opt-in reform would bring upon planners.
He said that there would be a test as to whether opt-in would be inconsistent with contract law, adding no other profession had this form of government regulation forced upon it in relation to commercial agreements.
“If it gets up, it’s a relatively unique proposition for a professional community,” Sanders said. “‘Unprecedented’ is a fair word.”
June Smith (pictured) from Argyle Lawyers has acknowledged many legal grey areas existed around the opt-in reform, which would need to be clarified before the legislation was drafted.
However, she said that if the opt-in proposal was legislated, advisers would alter the way they drafted contracts rather than stop offering them altogether.
“I think what you would find is that the contracts would start being written in a different way, with a clause being inserted in the contract term saying that it’s subject to opt-in and that each year as part of the contract you would see clients receiving this particular communication,” Smith said.
The question emerges as to how complex those contracts might need to be if the client doesn’t opt-in, according to Sanders.
“The contracts would be very complex. There would need to be some sort of specific contract provisions that kick in, which would remove things like the liability of the adviser for anything that happened to the financial product or the client’s investment after that opt-in conclusion,” he said.
Both Hii and Sanders agreed the industry would have to see the draft legislation before any further arguments were made about the opt-in reform.
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