Best interest duty is being used as a stick to punish advisers despite it not having a generally accepted meaning across the advice sector, according to a financial services lawyer.
Speaking as part of a panel, discussing the professionalism of financial advisers, at the Financial Services Council Summit 2019 in Sydney this week, Herbert Smith Freehills partner Michael Vrisakis said that despite best interest being used in discussions about advice, the term was being used in different ways and its meaning had become hard to pinpoint.
Vrisakis added best interest was used to define poor adviser behaviour when other issues may have been responsible for, or contributed towards, the issues at hand.
“When a report is issued on financial advice, part of the problem that is engendering a lack of trust is a presumption that advisers are doing the wrong thing as opposed to whether the regulations are complex and hard to understand or whether there were documentation issues, rather than advisers not doing the right thing,” he said.
He pointed to the fee-for-service issues that have come to light in large financial advice groups, claiming “most of that was about a lack of adequate documentation in parts of the regime, but it did not mean advisers had not acted in best interest”.
“This was one example where best interest becomes a cudgel and really deflates the confidence people have in advisers,” he said, adding advisers were caught out because they could not prove they had done the right thing.
“Advisers have been subjected to a regime where they have to prove something or disprove they have acted against the interest of customers.
“The reason for the compensation bills being high in the fee-for-service cases was that documentation did not exist and the benefit-of-the-doubt concept has become a principle in remediation, but it is not a legal principle.
“At the same time, this principle tends to obscure conduct so the public thinks all the advisers did the wrong thing, but that is not the case and there is not adequate documentation to prove that.”