Under recommendation 2.3 of the final report, the royal commission said that there should be a review by the government in consultation with ASIC that looks at the effectiveness of measures that have been implemented by the government, regulators and financial services entities to improve the quality of financial advice.
In particular, the report said that the review should consider whether it is necessary to retain the safe harbour provision in section 961B(2) of the Corporations Act.
Section 961B is an obligation for financial advisers to act in the best interests of the client in relation to the advice.
In the final report, Commissioner Kenneth Hayne said that the current safe harbour model does not prevent interest from trumping duty and altering the model is also unlikely to work.
“Another option would be to remove the safe harbour provision entirely. In my view, such a change would not be without merit,” he said.
“The safe harbour provision currently has the effect that, in practice, an adviser is required to make little or no independent inquiry into, or assessment of, products.”
Mr Hayne said that prescribing particular steps that must be taken, and allowing advisers to adopt a “tick a box” approach to compliance, the safe harbour provision has the potential to undermine the broader obligation for advisers to act in the best interests of their clients.
However, a review of the safe harbour provision, he said, should be delayed till after the many changes affecting financial advisers have come into effect.
Holley Nethercote partner Grant Holley said that if the safe harbour provision was removed, this would likely be a positive for financial advisers including those in the SMSF space, as it would effectively reverse the onus of proof that comes with that provision.
“If they want to rely on the safe harbour provision, they have to have followed a series of steps. If that [didn’t exist], it would be for the person alleging that the best interest duty hadn’t been met to prove that on the balance of probabilities that the adviser had not acted in their best interests,” Mr Holley said.
“I think that could be significant, if and when that happens, but it would be some way down the track.
“We should remember that all of these things are recommendations, none of it is legislation yet, we’ve got an election between now and May. They’re interesting recommendations, but they’re a long way from being law just yet.”
