ASIC has released consultation papers on the best interests duty and scaled advice - two key elements of the Future of Financial Advice reforms.
Consultation Paper 182 Future of Financial Advice: Best interests duty and related obligations – Update to RG 175 (“CP 182”) and Consultation Paper 183 Giving information, general advice and scaled advice (“CP 183”) set out proposed guidance in relation to financial product advice in light of the Future of Financial Advice (“FoFA”) reforms. Our alert on the passing of the FoFA Bills is available here and the consultation papers can be accessed here.
Submissions on the proposals are due by 20 September 2012.
CP 182 – the best interests duty and related obligations
CP 182 proposes to update Regulatory Guide 175 Licencing: Financial product advisers – conduct and disclosure (“RG 175”) to include proposed guidance on how advisers can comply with the best interests duty and related obligations contained in Div 2 of Pt 7.7A of the Corporations Act.
CP 182 covers the following key areas:
- Acting in the best interests of the client – it is proposed that ASIC will expect that the processes an adviser follows in acting in the best interests of their client will result in the client being in a “better position”, if the client acts on the advice provided.
- Satisfying the steps for the bests interests duty – it is proposed RG 175 will include details of what ASIC expects for advisers to comply with each of the steps for the best interests duty in section 961B(2). This includes some examples of steps that may be required to meet the “catch all” (in subsection 961B(2)(g)) which provides that an adviser must take ‘any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client’s relevant circumstances’.
- Providing appropriate personal advice – it is proposed ASIC will consider that advice is appropriate if it would be reasonable to conclude, at the time the advice is provided, that following the advice is likely to satisfy the client’s relevant circumstances and leave the client in a “better position”.
- Prioritising the interests of the client – it is proposed that advisers with a conflict of interest should be guided by what an adviser without a conflict of interest would do.
CP 183 – financial product advice (including “scaled advice”)
ASIC intends to issue a new Regulatory Guide which will incorporate and build on the guidance in RG 200 Advice to super fund members but will be applicable to all AFS licensees, authorised representatives and advisers who give information and advice to retail clients.
The proposed guidance in CP 183 explains (using examples) the distinction between giving factual information, general advice and personal advice and when ASIC may consider that the different types of advice have been given. CP 183 also provides guidance about methods of communicating and delivering advice to clients.
In relation to “scaled advice”, CP 183 provides proposed guidance and examples about giving scaled advice that complies with the personal advice obligations in Chapter 7 (including the best interests duty and related obligations). The proposed guidance in relation to “scaled advice” includes that:
- the same legal requirements (including the best interests duty) apply to scaled advice as to ‘comprehensive’ advice and it is possible to give scaled advice that complies with these requirements;
- judgment will need to be exercised to determine whether advice which is limited in scope will still comply with the legal requirements (including the best interests duty);
- the scope of advice should be adjusted according to the complexity of the advice, the capacity of the client to understand the advice and the potential impact of any inappropriate advice on the client; and
- processes should be implemented to assist with determining whether good quality scaled advice can be provided (for example, by asking a series of questions to determine the appropriate scope of advice by reference to what is in the best interests of the client).