News

ASIC, LRBA, Regulation

Adviser banning blurs best interest duty

A red and white sign reading wrong way seen over shoulder of a man

Disallowing franking credit refunds to some retirees will act as a disincentive to save.

The recent banning of SMSF adviser Jason Atkins has highlighted the dangers financial planners face in complying with the best interest duty requirements under the Future of Financial Advice reforms, a strategy specialist has said.

The Australian Securities and Investments Commission (ASIC) banned Atkins, an authorised representative of Magnitude Group, because he was found not to have investigated or considered whether a limited recourse borrowing arrangement (LRBA) implemented for a client to invest in property was in the client’s best interest.

Speaking at the 2018 Self-managed Independent Super Funds Association Annual SMSF Forum in Melbourne last week, BT Financial Group SMSF strategy national manager Neil Sparks expressed great concern toward the commentary around the banning.

“The quote which I find incredible is ‘the potential loss to the client is potentially very serious’,” Sparks said.

He was quick to point out this was not a criticism of the corporate regulator, but rather an illustration of the difficulties in complying with the best interest duty.

“The client has obviously come in and said we want to set up a self-managed super fund, we want to invest in property, we need an LRBA. The adviser has acted on that, written a statement of advice recommending a course of action or the outcome the client wants to achieve,” he said.

“But his file didn’t demonstrate that he had researched the existing product that the client was in and determined whether that product was going to have a better outcome for the client’s retirement than buying a property.

“So this was actually a performance-based banning.”

He said he found the thought process behind the ban worrying, considering the danger in future performance forecasts.

“Now remember we’ve all been schooled on past performance isn’t an indicator of future performance, so it’s a bit rich to suddenly go we’ve got to take the past performance and model that all the way through to retirement, then work out whether the property would lead to a better outcome for the client,” he said.

According to Sparks, the decision demonstrated ASIC’s attitude toward these scenarios.

“ASIC want you to give advice. So advice is based on research and outcomes and that’s the best interest,” he said.

“So if a client comes in and says ‘I want this’ and you go ‘I can write a client’s document that gets the client what they want and I get paid’, that’s really not good enough in the best interest duty going forward.

“So you have to look at what they’ve got, what they say they want, and give them advice.”

Copyright © SMS Magazine 2019

ABN 43 564 725 109

Benchmark Media

Site design Red Cloud Digital