Editorial: And so it begins

12-Jan-2017

By Darin Tyson-Chan

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Last year certainly ended in fairly dramatic fashion for financial services with the news on 22 December that ASIC was taking action against Westpac Securities Administration and BT Funds Management for breaches of the best interests duty under the Future of Financial Advice (FOFA) reforms.

The whole of the financial services sector had been holding its collective breath as to not if but when an action of this nature was going to happen.

Since the FOFA legislation was debated and then passed, the best interest duty had been one of the more contentious inclusions, especially as to how it would eventually be interpreted by the regulators.

We now have some indication as to what adhering to this obligation might mean, but the arguments put forward by both ASIC and BT Financial Group have already illustrated how arbitrary or subjective rulings regarding this standard might be.

The regulator is arguing the Westpac-owned entities did not act in the best interests of clients because they rolled superannuation entitlements from a variety of other funds into those that were owned and run by Westpac through provision of personal advice - which is not permitted under the bank’s Australian financial services licence - and did not provide a proper comparison between the various products.

In contrast, BT Financial Group is arguing its provision of assistance in helping individuals consolidate their numerous super balances is in these people’s best interest, citing ASIC’s own MoneySmart website that recognises the advantages of this type of strategy.

The group has also denied it provided personal advice and in doing so has questioned the regulator’s view of what constitutes general and personal advice.

Regardless of who might be in the right and in the wrong here, the case has really revealed the intricacies of applying the FOFA legislation and in particular the best interest duty.

The definitions of personal and general advice, the commitment to provide efficient, honest and fair services, and the legitimacy of an assortment of customer engagement techniques are all intertwined here.

Unfortunately, the only way to test the implementation of FOFA was always going to be by way of litigation. The only unknown was who would ultimately initiate the action.

Of course, with litigation comes a lot of expense, even if it eventually does clear an organisation of any wrongdoing. Time will tell who ultimately wears these costs.

No doubt all financial services eyes will be fixed firmly on the proceedings of 2 February when this case is heard in the Federal Court.

It may well be the first of many of its kind, but the one thing we should all hope for is the results encourage the provision of better quality financial advice for consumers and in turn better financial outcomes.

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