Financial advisers often play an important role in helping their retail clients choose financial products. This advice should therefore take into account the clients’ needs, and the performance and other characteristics of the product. Recent trends towards industry consolidation have created interdependencies between financial advisers, product providers and investment platforms. These associations mean that many advisers effectively act as a product pipeline. Of the remainder, the majority receive commission from product issuers which act as an incentive to promote certain products. In 2009, the Parliamentary Joint Committee on Corporations and Financial Services examined issues surrounding the provision of personal financial advice. The Committee proposed the introduction of a professional standard requiring advisers to put the interests of their client first. In response, in 2011 the Australian Government introduced a statutory duty requiring financial services licensees, authorised representatives and advice providers to act in the best interests of their client. As part of its role in administering these statutory requirements, on 13 December 2012 the Australian Securities and Investments Commission (ASIC) released its industry guidance on the best interests duty. The guidance is intended to provide more detail for industry participants on how they can best comply with the high-level, principles-based obligations under the legislation. The guidance is intended to define and better explain key terms in the legislation; reduce any confusion or uncertainty for industry regarding their compliance obligations; and in doing so, improve the quality of advice to retail clients. Industry is expected to incur costs associated with compliance monitoring; record keeping; changes to IT systems and processes; and staff training. There was a significant divergence in stakeholder views about the range of compliance costs for industry. These costs are also expected to vary based on the size of each business’ operations. However, ASIC anticipates that the costs for industry associated with the guidance itself are likely to be minimal. In terms of the impacts on consumers, the proposal is anticipated to enhance trust and confidence in the financial services industry. A Regulation Impact Statement was prepared by ASIC and assessed as adequate by the Office of Best Practice Regulation.
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