Unclear best interest guidelines spell trouble
Treasury should fix the uncertain best interest guidelines so that advisers are clear on the extent they are protected from legal claims brought by disgruntled clients, according to TurksLegal.
Adhering to the best interest steps as they are currently laid out will not guarantee advisers' protection from legal claims that they have not acted in a client's best interests, said TurksLegal senior associate Darryl Pereira.
The 'best interest' actions currently outlined in the Future of Financial Advice (FOFA) legislation are only drafted to be minimum requirements and strict compliance will not be a complete defence, and the present drafting only creates uncertainty rather than a reliable framework, he said.
If the legislation were amended to provide that advisers who comply with the best interest steps are presumed to have acted in the client's best interests, the client would then be obliged to prove this was not the case, he said.
"It would be very unfortunate if planners and their clients had to resort to costly court action to clarify these hazy boundaries," he said.
The draft FOFA legislation also fails to clarify how the best interests test interacts with an adviser's fiduciary obligations or the due care and skill obligation imposed on advisers by the Australian Securities and Investments Commission, meaning advisers could face the same allegations under a raft of different legislative regimes, he said.
As a consequence, there is a very real risk that advisers will face the same allegations under a raft of different legislative regimes, he said.
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