Advice should leave people better off

By Tom Garcia, policy and regulatory manager, Australian Institute of SuperannuationTrustees

In Minister Shorten’s second reading speech to introduce the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011, he said, “I believe that the vast majority of financial planners do see their role as making their dealings with customers such that, after having dealt with the planner, the customer is better off than if the customer had never sought financial advice to begin with.”

Subsequently, the Australian Securities and Investments Commission’s (ASIC’s) recent consultation paper CP182, relating to the best interests duty, included a section which states that ASIC “expect[s] that the processes for an advice provider to follow in acting in the best interests of their client will result in the client being in a better position”.

Critically, this is followed by a paragraph that states, “Leaving the client in a better position is not necessarily confined to a monetary improvement, but can encompass such things as a client’s preparedness for the future, susceptibility to risk or having access to certain product features or services. Not all clients will seek financial advice to improve their financial situation.” (RG175. A30).

During our consultation with ASIC, we were informed that some parties were suggesting this requirement was too onerous and had proposed new wording along the lines of “the client should be no worse off”. It is this sort of spineless and self-interested mode of thinking that will keep the financial planning industry stuck in a time warp and never progressing towards a profession. Let me reflect.

Six weeks ago, my five year-old son was struggling to get over a virus and we were directed, over the phone, to a children’s emergency department to get some tests done. Our doctor said there was no point in coming to see him as he would only tell us to go to the emergency department anyway. Numerous tests and hours later, we were taken to an adjoining room to meet with a team of oncologists and we were told that our son had leukaemia.

The shock was both instant and overwhelming.

Since then, we have been in the care and “under the advice” of a team of professors, doctors, nurses, specialists, surgeons and social workers. Every week our son has an operation and almost every day he receives some type of medical or chemotherapy treatment. The protocols are very deliberate and we have been told a three-year treatment plan is involved.

So, how does this relate to RG175.A27 of CP182?

It relates because never, ever did it enter the minds of any one of the many medical personnel who have tended to my son that whatever treatment they were administering would be given so that he would ‘not be worse off’. Can you imagine a doctor discussing with a patient that they were going to prescribe medications or perform an operation under the premise that the patient would be no worse off? No, you cannot because it is ridiculous and unfathomable.

Professionals only act when they believe their advice or actions will result in an improvement to the situation they face. Why would anyone do anything if they thought it would make no real difference?

Perhaps the parties advocating for this change are worried that if the client were to experience a negative return then they would be liable. They should take comfort in paragraph 1.23 of the accompanying Explanatory Memorandum to the Bill, which states, “The provision is not about justifying the quality of the advice by retrospective testing against financial outcomes”. ASIC will review the quality of advice and what occurred at the time the advice was given. They will not assess whether the best interests duty in section 961B(1) has been complied with by reference to the performance of a fund alone.

When financial planners or interested parties wish to set policy on how the best interests test should work or will apply, they should put themselves in the position of another professional and review the result. It allows greater perspective and most likely a better outcome. I know the doctors we speak to every day are doing their darndest to cure my little boy. I would expect nothing less and neither would they.