New rules likely to soon pass Australia’s parliament will make financial advisers and product issuers directly liable for ensuring financial products are only sold to suitable customers — shifting responsibility from ‘buyer beware’ to ‘seller beware’.
Australians haven’t yet recognised the tremendous significance of these new financial suitability laws, which turn conventional wisdom about who is liable for what on its head” said Shawn Brayman, a global financial suitability expert visiting Sydney. “In this new world product issuers and advisers are always responsible for ensuring suitability — and directly liable for any mis-selling.
Similar rules already in effect in the UK are causing massive upheaval as people scramble to build suitability into their financial products, advice and distribution.” The new rules are an acknowledgment that most customers of financial advice and products lack the abilities and knowledge needed to evaluate them – no matter how much disclosure occurs. “Often, the buyer simply isn’t equipped to make good judgements — so lawmakers in the UK, Canada and Australia are saying to product issuers and financial advisers that they will now be held liable for unsuitable advice or mis-selling. And it will cost them serious amounts of money if they get it wrong.” In the UK the compensation for mis-selling of financial products has already run into tens of billion of pounds.
Shawn’s company, PlanPlus Global, is a fintech business that supplies suitability tools and algorithms to UK wealth advisers and product issuers to help them build processes that comply with the tough suitability laws that flowed from MiFID II. “These laws will come into effect in Australia very soon,” said Shawn. “They’ve already been through two years of development and consultation; they’ve already passed the House of Representatives and they are the perfect response to the Royal Commission — as, for what might be the first time in Australia, consumer protection and the consumer’s interest is being put first.”
The Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2018 is currently with a Senate Committee which must report by 9 November 2018. The bill requires that a financial product have a defined target market for which the product is suitable. Sales of products to people outside the defined market must be reported to ASIC.
“This will change everything about the way you do business. You have to know the products and clients like never before and you have to have a defensible argument for why you have put the two together. Building suitability into initial and ongoing advice is a big task, that will quickly chew up the two-year transition to the new regime”.
Paul Resnik – Executive Director, PlanPlus Global – November 19, 2018