Fiduciary duty ‘beefed up’
Fines for financial advisers breaching their fiduciary duty could increase dramatically, moving the current maximum fine of $500 up to $200,000 when new legislation is introduced next month. The Government wishes to amend the Corporations Act to explicitly include a statutory fiduciary duty for financial advisers operating under an AFSL, requiring them to place their clients’ interests ahead of their own.
Currently an authorised representative’s defence is to simply rely on the Licensee’s instructions and advice. If this new legislation is passed, then the authorised representative becomes liable. The proposed reform may place the adviser (authorised representative) in a position similar to that of a company director, where if found to be reckless, the fine under a civil action may increase from a maximum $500, to $200,000. If ASIC also decides to be involved in the complaint, then the new reform will allow for criminal liability, and a prison sentence of up to 5 years. At the moment, it’s not considered a criminal offence if an adviser is found guilty of being reckless, and not acting in the client’s best interest. The new law will allow for court awarded compensation, paid by the adviser to the client.
Media reports have indicated that planners feel that the fiduciary duty that currently exists, is not much different to the one that’s being introduced to parliament next month. In summary, we now have a $500 fine, no jail, no compensation and next year, $200,000 fine, 5 years jail and compensation. It would be interesting to see if any court awarded compensations will be covered by Professional Indemnity insurance if the adviser is found to be ‘reckless’.