You work hard to do your best for your clients. But are you putting your clients’ interests first?
As part of the new rules coming into force for all financial advisers as part of the Financial Services Legislation Amendment Bill, a duty will be introduced that will require everyone giving retail advice to give priority to their clients’ interests.
This is a similar provision to that already placed on authorised financial advisers, who have been operating under a code of conduct since the Financial Advisers Act.
The IBANZ code of conduct also requires that the association’s members act with integrity and put their client interests first, based on what is reasonable in the circumstances.
But for those not operating under that code, the new rules will be the first time many general insurance brokers, operating as registered financial advisers, have such an obligation placed on them.
IBANZ chief executive Gary Young said the obligation should be common sense for any broker who was operating professionally.
“The traditional debate is that if a broker gets more commission from one insurer than another they might be tempted to put the client with the one with higher commission rather than the one that suits clients,” he said.
“But our experience is that’s not an issue. Brokers tend to get the same commission rate from all insurers.”
Jane Standage, a financial services specialist at law firm Minter Ellison Rudd Watts, said more guidance would be needed on how the duty would be expected to apply to each sector of financial advice. That is likely to come from the regulator over the coming months as the regime moves towards implementation.
More detail about the expectations on brokers will also come from the new code of conduct being developed.
But she said a key point for brokers to consider, to ensure they had met the duty, would be the opinions of others in the industry.
They should be satisfied that a reasonable adviser would agree that it had been in a client’s interests to recommend a particular product. “Because the broker receives revenue from a transaction another way is to check it offers extra benefits for the client.”
Brokers would probably need to be able to perform some sort of benchmark process, she said, to show how their products compared to the others that were available.
“They might need to be able to say ‘here are the other products in the market but this is better for you for these reasons...”
Brokers who were tied to a particular product provider could still satisfy the requirement by informing clients that they could only advise on a limited range of products, and showing that their recommendations were still reasonable.
Financial services lawyer David Ireland said a key consideration for many brokers would be how they evidenced that they had met the duty, rather than the mere fact of meeting it.
They would have to consider how they explained their scope of advice to clients and within that think about how they gave priority to the client’s interest, making sure they were not influenced by the interests of third parties. Ireland said it did not mean that brokers could not take commission or other incentives but that they needed not to be materially influenced by those factors.
They would need clear systems to survey the market and prove to anyone who queried it that the products recommended were a good fit. Good paperwork and record-keeping would be required as proof, he said. For many advisers this could mean a significant increase in administration beyond their current systems.
Sometimes brokers would find that acting in clients’ interests did not necessarily mean doing exactly what clients asked for, he said.
Young agreed brokers would need to be able to show, if something went wrong, why they put a client with a certain insurer.
“I don’t think this is going to cause much angst. It tends to be more of an issue in other parts of insurance – such as life, where they are offering a trip around the world if you put so much business with them. General insurance doesn’t tend to operate in the same way.”