Last week I attended an annual conference for participants in the self managed superannuation industry. This is an area that we specialise in so keeping abreast of changes is of great importance to us.
While many of the sessions focused on legal, legislative, tax and industry issues, there was a speaker who discussed the vital role of industry professionals that provide advice and service to those people and families who operate self managed super funds. He stated a point that really made good sense to me, which I’d like to share with you.
One of his key points was around ‘acting in clients’ best interests.’ For those who aren’t aware, there was a raft of legislation passed through Parliament last year by the Labor Government that focused on roles of the financial planning industry. It was given the abbreviated title of FOFA which stands for the Future of Financial Advice in Australia. The legislation was in direct response to the collapse of several major financial institutions including Trio, Westpoint and Storm. With the change in Government late last year, there has been a review of the legislation and it seems that their intent is to ‘water down’ it down.
One of the amendments the Government is seeking to change is around financial planners having to abide by ‘acting in a client’s best interests.’ You might wonder why this is on the Government’s agenda when it seems that this is what you’d expect from someone who is providing financial advice.
The difficulty, it seems, is in legally clearly defining what this means and how it would be enforceable. Back to the speaker who was discussing this subject. He said that it doesn’t matter if the legislation is passed or not because for the financial planning industry to be recognised as a credible profession and trustworthy provider of advice, it must always act in the clients best interests. Exactly. His comments resonated with me. Financial advice is very different to most other advice service industries because it’s very difficult to know if the advice you are getting is in your best interests.
This brings me onto another legal requirement of financial planners and which dove tails with ‘acting in your best interests.’ This requirement is known as ‘know your client’ rule and has been around for many years. The purpose of this rule is that in order to provide advice you must know your client – and this can only be achieved when you have asked questions and gathered all the relevant information. This then forms the foundation and basis for recommendations that clients should be able to rely and act upon. Quality financial advice is based on understanding the client, defining the objectives or outcomes they are seeking and then providing strategies and solutions that are meaningful and in their best interests.