Client's best interest in spotlight
21 Jun 2016
Placing the "interests of client first or acting in the "client's best interest" is an ethical issue which is coming under increasing attention through a legislation review in NZ and legal action in Australia.
The current review of the NZ Financial Advisers Act is likely to produce a recommendation to extend the Code of Professional Conduct from Authorised Advisers to all financial advisers including insurance brokers. The Code obliges advisers to place the interests of the client first and act with integrity in accordance with the overarching purpose of the Financial Advisers Act, and applies irrespective of the application and effect of any other Code standard.
As the cornerstone of ethical behavior the meaning of the "interests of the client" will be crucial for advisers in their future dealings with clients.
In Australia the obligation is worded slightly differently as acting in the "client's best interests". The implication however is the similar in that an adviser must put the interests of a client ahead of their own.
This month the Australian Securities and Investments Commission (ASIC) began legal action against the dealer group for not acting in clients’ best interests when selling life insurance.
It is the first time the best-interests duty has been tested in the courts.
Law firm Slater & Gordon has offered to act for clients seeking compensation over advice from NSG Financial Services.
Slater & Gordon Senior Associate James Naughton says it is a landmark action that will determine how the courts deal with the best-interests requirement.
“This is an important development for consumers who may have claims against their financial adviser for the provision of poor financial advice,” he said.
“Slater & Gordon is currently investigating whether the conduct of NSG will lead to compensation claims to those who received its financial advice.”
ASIC alleges NSG failed to take reasonable steps to ensure its advisers complied with their obligations, did not deliver appropriate training to advisers, pushed unnecessary products and did not provide compliance and risk management policies.
No doubt the legal fraternity on both sides of the Tasman will be keeping a close watch on the outcome of this test case.