Can funds provide unconflicted advice in the absence of good advice duty?

In his speech to ASFA, Financial Services Minister Stephen Jones clarified that the reason he supports the expansion of advice provisions offered by superannuation funds is the stringent regulations governing them, which mandate that they act in the best interests of their members.

However, speaking on a live ifa webcast in May, the Quality of Advice (QAR) lead Michelle Levy explained that during her review, she identified a conflict between two obligations confronting super funds — a conflict she proposed to fix by replacing best interests duty with good advice.

Namely, Ms Levy assessed that a fund trustee’s obligations under the SIS Act [Superannuation Industry (Supervision) Act 1993], to exercise its powers in the best financial interests of members and to promote their financial interests as a whole, conflict with the duty to act in the best interests of an individual member receiving advice.

According to the QAR lead, it is impossible to ask the trustee to reconcile these duties.

“The best interest duty that applies to a superannuation fund trustee is one of the issues and things that don’t make sense in the existing regime,” she said.

“The duty to exercise your powers in the best interests of your members, which is in the SIS Act, and it is a trustee duty, is a duty to act for a proper purpose, not to have a conflict, and to act in the interests of your membership as a whole.

“The current best interests duty for giving advice applies to the individual member. If the trustee is giving advice, that duty is owed to the individual. And so how does the trustee reconcile a duty to act in the best interests of the members as a whole, with the duty to act in the best interests of the individual member when giving them advice?”

Referring to the current law as “a bad law”, Ms Levy said “it’s not fanciful” to think about a conflict in a situation where a trustee is asked to reconcile these two duties.

“Really, this conflict between the two duties is ignored in the current law and it’s just a bad law. It should, in my view, go,” Ms Levy said.

According to her, what the good advice duty would do is change this approach by removing that inherent conflict.

“What a trustee would need to do [if best interest is replaced by good advice] is they would say, is it in the best interests of my members as a whole for me to be in the business of giving advice to individual members?

“If the answer to that is yes, then off you go, you’ve satisfied your best interests duty and then you would have a good advice duty each time you give advice to an individual.”

ifa previously learnt that Mr Jones is doubting the veracity of Ms Levy’s good advice duty.

Touching on the possibility that the minister could dismiss her good advice duty at the Adviser Innovation Summit in Sydney last week, Ms Levy said that failure to adopt the duty would put super funds in a “really, really difficult position”.

“I think they are already with that intra-fund advice because of that issue they’ve got between what can be conflicting duties.”

However, Industry Super Australia — which represents funds including HESTA, Cbus, Australian Super, and Hostplus — previously warned that replacing best interests duty, alongside the introduction of personal advice providers who are not required to meet the professional standards, “will materially change how advice is offered and regulated”.

“In our view, these proposals will likely lead to lower quality of advice.”

Similar concerns have also been raised by consumer groups such as Choice, which argued that best interests duty is a “critical consumer protection” and, as such, should not be removed.

“The proposed watering down of the best interests’ duty to an obligation to give ‘good advice’ will push financial services regulation back decades,” Choice said in a letter it penned with a number of consumer groups.

Others, however, including ASFA and the Financial Services Council have endorsed Ms Levy’s recommendation.