Sonia Cruz

Financial advisers will need to keep additional records proving they’ve complied with the Best Interests Duty when they give personal advice to retail clients after 23 March 2015.

The Fold Legal (The Fold)’s senior compliance consultant, Sonia Cruz, says advisers will be required to keep records of how they acted in a client’s best interests; the advice they gave to the client and any conflicts of interests, for seven years after the advice is provided.

“For best interests, advisers should keep the information they relied on and the actions they took to show that they acted in the best interests of the client,” she says. “If they relied on the ‘safe harbour’ provision, this includes records of all the safe harbour criteria.”

In relation to records of advice, Ms Cruz says the record must demonstrate how the advice was appropriate, and how the Best Interests Duty had been satisfied.

“If the adviser, or anyone associated with them or with their licensee, knew or should have known about a conflict of interest, the information relied on and the actions they took to show that they prioritised the client’s interests over their own interests is also necessary,” she says.

Ms Cruz says the requirements make it clear that the Australian Securities and Investments Commission (ASIC) believes good record keeping systems support the ongoing provision of quality advice to clients, help licensees supervise their representatives and help consumers hold the licensee/advice provider accountable for the quality of their advice.

“To prepare for the new obligations, Australian Financial Services licensees need to review and if necessary improve the way their advisers collect and retain information when advising clients,” she says. “Advisers and licensees need to be looking at the ways they are using fact finds, customer relationship systems or other information collection documents. They also need to be taking detailed file notes at all stages of the advice process, keeping copies of client records and keeping records of the research used to advise clients.”

Ms Cruz says when it comes to paperwork, licensees shouldn’t ‘set and forget’. “Include record keeping checks in your adviser monitoring process, if you haven’t already,” she says.

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Adam Gee

AdviserLogic is to work with superannuation research provider, SuperRatings to offer financial advisers the ability to thoroughly and extensively research and compare clients’ existing and proposed superannuation arrangements.

“Advisers must meet their obligations under the Best Interests Duty,” said AdviserLogic head of product development Daniel Gara. “When advising on superannuation, this means they must be able to properly and extensively consider the many superannuation options available to their clients. The SuperRatings research tool now allows AdviserLogic users to do this quickly and efficiently.”

Mr Gara said AdviserLogic chose to work with SuperRatings because it offers the breadth of coverage, depth of analysis and level of insight advisers need in order to make decisions about their clients’ superannuation arrangements.

“Efficiency is our obsession,” he said. “We believe the SuperRatings research tool will dramatically reduce the amount of time advisers and support staff spend on entering and extracting client and industry data making the process faster, more thorough and more efficient.”

In the first instance a link will be provided to AdviserLogic users to access data from the Superatings website. In the coming months AdviserLogic will be developed to integrate all the necessary data within the solution. “This means advisers can meet compliance obligations when comparing their clients existing super to recommended super solutions,” Mr Gara said.

SuperRatings has been providing its research tool to public offer and industry super funds for many years and has long-established relationships with a range of industry, retail and corporate super funds. “The established connections SuperRatings have are really important to us,” Mr Gara said. “It means they are able to obtain the data needed by advisers and interpret it in a way that can be compared and implemented easily.”

SuperRatings CEO, Adam Gee, said, “We are pleased to work with AdviserLogic by providing in-depth superannuation fund research, which will assist advisers offer quality advice covering both the retail and not for profit sectors.”

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Claire Wivell Plater, Managing Director of The Fold, says the problem with asset based fees is that they incentivise advisers to recommend strategies and products that maximise the assets they manage for the client.

Under the Best Interests Duty, clients must be given non-product-related solutions where appropriate, even if that means the client is less likely to need future advice.

“The new Conflicts Priority Rule means that advisers cannot recommend strategies or products that create extra revenue for themselves or their licensees unless they can demonstrate additional benefit for the client,” she said.

“If they are not actually managing the clients’ assets or where an asset-based fee would not adequately remunerate them, they need a fee structure that remunerates them for the work they do. Advisers also cannot over-service a client to create more remuneration for themselves.”

Ms Wivell expects a trend away from 100% asset-based fee structures to fees that are based on the work done for the client, or a combination. “While the Government is not banning asset-based fees outright, they are making it increasingly inappropriate to charge them,” she said.

Ms Wivell Plater likened the rule to the Government’s current anti-smoking legislation.

“Smoking is not actually banned, but federal and new state legislation make it difficult to smoke anywhere. New anti-smoking legislation introduced this month in NSW, for example, bans smoking in places like transport stops and entrances to NSW public buildings.

“It’s similar to the legislation surrounding asset-based fees. Advisers aren’t specifically banned from charging them – but if they do, they risk either falling foul of the Conflicts Priority Rule or not being adequately remunerated for their work.”

Ms Wivell Plater said many advisers will need to rethink how they charge for their services and this is likely to present a big challenge.

“Setting up an engagement process is key to complying with the new law,” she said.

“Advisers need to understand how to define the terms of engagement from the moment they first meet with a client.  If the service proposition and the client’s fee commitment are clear from the minute the client walks in the door, the financial aspects of client relationships become easier to manage.”

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The work seeks to promote confident and informed investors and financial consumers, noting the value good financial advice can provide to consumers in helping them make important financial decisions.

ASIC Chairman, Greg Medcraft, said: ‘FOFA contains significant reforms intended to bring about real changes in the way financial advice is provided. These measures aim to improve the standard of adviser conduct and improve engagement by retail clients with advisers and advice.’

ASIC’s proposed guidance on the best interests duty covers the following areas:

• acting in the best interests of the client
• satisfying the ‘safe harbour’ for the best interests duty – including providing guidance on each element of the safe harbour
• providing appropriate personal advice; and
• prioritising the interests of the client.

ASIC’s proposed guidance on scaled advice will apply to all industry sectors, including super, financial planners, and banks and insurers, and includes practical guidance and examples about giving scaled personal advice, as well as practical examples about giving factual information and general advice to clients.

ASIC’s proposed guidance in this area indicates:

• All advice is scaled to some extent – advice is either less complex or more complex along a continuous spectrum (i.e. there are not two categories of advice ‘scaled’ and ‘holistic’).
• In general, the same rules, including the best interests duty, apply to all personal advice, regardless of the scope.
• It is possible to provide less complex advice in a way that is consistent with the best interests duty and the law generally.

To read the consultation papers, click here.

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