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FOFA catch-all to ‘catch out’ advisers

The general ‘catch-all’ provision of the best interests duty may extend to an adviser's obligation to consider a client's personal circumstances, a compliance consultant has warned.

Speaking at the Lifespan national conference in Sydney last week, Catalyst Compliance director Peter Cashel suggested the ‘catch-all’ provision reintroduced by the Senate’s disallowance motion could potentially cause compliance issues.

In section 961B(2)(g) of the Corporations Act, advisers are required to show they have “taken 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”.

Mr Cashel said this general clause means advisers need to consider a wide range of circumstances and warned it would be “the one that can catch you out”.

“It’s the thing lawyers will be hanging their hat on,” he said.

In particular, he suggested this clause means advisers need to take into account a client’s debt levels.

“It can mean if a client has debt, you actually have to look at that debt. Is it better for the client to pay off their debt or not?” he said.

However, he warned this did not necessarily mean advisers were obliged to favour debt reduction.

“Depending on what they want to do, today it might be appropriate that they don’t pay off their debt, because their mortgage is maybe four per cent but the markets are returning seven per cent,” he said.

To fulfil their obligations under the ‘catch-all’, he suggested advisers would need to undertake strategy research looking at current market conditions, competing strategies and any other relevant information.

Moreover, he said advisers needed to document all the research they undertook.

“Here’s the tip – keep your documentation. Be able to prove you acted in the client’s best interests,” he said.

Comments (27)

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  • <p>Phillip<br>CORRECT<br>we offer strategy, products are tools to make the strategy work. Clients do happily pay through good and bad times if you do your job well-communication rings a bell.</p>
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  • <p>There&amp;#039s a clue in your name - advisers - and that is to offer ADVICE rather than instructions. The job as advisers is to explain complex concepts simply and to then show how a client MAY use certain strategies to achieve THEIR stated objectives, if they wish to do so. Cheque please...<br>If you&amp;#039re any good at that (and if the client is capable of understanding) then the client will (after paying for your advice) be then able to INSTRUCT you (just as they do with lawyers) to proceed to implement on their instructions. BUT the catch is that you can&amp;#039t sell anyone&amp;#039s product that way. That&amp;#039s why we independents charge fees for service whether the client proceeds or not - and it&amp;#039s why the vertical integration model can&amp;#039t work. <br>BTW - they WILL and DO happily pay fair fees for sound advice, but are wary of paying to be sold a product.</p>
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  • <p>Yep, and the one item that was blindingly obvious to all that weren&amp;#039t under a rock was that catch all provision would remain in the legislation. Given the amount of commentary around it I have wrongly assumed it was well known to all.</p>
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  • <p>
    Seems Peter Cashel and Lifespan have just caught on to what most have been stating since FOFAs inception and the catch all provision.
    <br><br>Pugsly,<br><br>You may recall that when in opposition the Liberal party said they would remove the &amp;#039catch all&amp;#039 requirement. When liberals were elected ASIC took a &amp;#039no-action&amp;#039 approach ie, no action if you didn&amp;#039t comply with the requirement.<br><br>Subsequently the Liberals amendments were rejected by the Senate ie, the catch-all was now law. We all knew about it but it was not until December 2014 it was a requirement to &amp;#039do anything else necessary&amp;#039(the catch all).</p>
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  • <p>Steve, is it the industry thats a joke? Or the illinformed poloiticians that set the legislation. Im betting you are a dedicated professional who takes his work very seriously and does everything he can to act in the best interests of his client. Does not sound like a joke to me! Bill Shorten, now there&amp;#039s a joke!! I agree with everything you say right up to where you call all of us a joke, or perhaps I have misinterpreted your statement? A bit more of Little Britain? :)[/quote]<br><br>....Les, if I answered thee on a Monday I&amp;#039d say Yeeees. If I answered thee on a Tuesday I&amp;#039d say......Yeeeees. If I answered thee on a Wednesday, I&amp;#039d say......Yeaeeeees. Overall I can&amp;#039t answer thee at all without first completing this 20 page fact find and multi question SH Checklist to then issue you with a 40 page SOA that no one wants to read nor complete so I can eventually say(flute playing) ........Yeeeeeees.</p>
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  • <p>Ben<br>If we continue to complete due diligence and offer holistic advice - no issues. If scaled advice and you acknowledge other issues and the client still agrees to scaled advice, it becomes a legal matter BUT at the end of the day the client controls their life and the advice offered. It then becomes hard for the legal chasers to sue if the client has signed off with full knowledge. The buck has to stop somewhere and its about time we stopped shooting blanks and had input through the professional bodies to remove this so called threat to our profession. Do you see a medico sued if a patient sues after refusing treatment knowing all consequences. NO. Lets move on to more important issues like just doing our job very well.</p>
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  • Compliance Steve Tuesday, 17 March 2015
    <p>A lot of the FOFA provisions come out of the ASIC Report 279.One of the main criticisms from report 279 was the fact that people went for retirement advice but within their advice, debt ,Centrelink and other provisions were totally ignored. So as an adviser you may need to point to the elephant in the room. Do not ignore factors that may impact on their retirement because you do not want to be the bearer of bad news or because they actually will have no funds to invest because best interest is to repay as much debt as possible. In the end it all comes down to how well you document your discussion with the client and the limitation it places on your advice in the accompanying SoA if they decide to scope it out.<br>In some cases you may have to refuse to give advice. Blindly doing what the client wants without taking their best interest into consideration is where advisers will play into the hands of lawyers.</p>
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  • <p>The problem we all face is that Lawyers are untouchable - they can&amp;#039t be sued for their bad advice and they know it. But any Lawyer can ask a loaded question to any client, and even if the client is happy they can be made to feel as if they received bad advice. Some Lawyers are just working the system now, and trawling for anyone they can to start action against planners. The system is broken and the vast majority of planners who are honest and ethical are now tarred with the same brush as the bad nuts in our industry. Like one of the earlier comments, with the amount of disclaimers in our SoA&amp;#039s clients automatically wonder about the quality of advice they&amp;#039re getting. Time for ALL industry bodies to show what they&amp;#039re made of plus Dealer Groups and all of us to get very vocal about they fact that we need to be allowed to HELP CLIENTS in a way that clients can afford.</p>
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  • <p>Mr T you mean you don&amp;#039t go to that level of detail now? What else goes into a 70+page SoA :)</p>
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  • <p>Clients now have an unprecedented opportunity to sue us. Let&amp;#039s face it, that is what the legislation was designed for. During the first interview, think to yourself. Is this a client I can trust? Will they sue me if something goes wrong? Can I afford to take the risk on this client. The world has changed. Keep your friends close, your clients even closer!</p>
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