Australia was not the only country to critically review the regulation of its financial advice industry in the wake of the global financial crisis.
The US Wall Street Reform and Consumer Protection Act of 2010 is commonly described as having brought about the most far reaching financial market regulatory reforms since the Great Depression. Not only does the Act require all US investment advisors to be registered (and therefore subject to regulation) but it allows the regulatory body to impose a fiduciary duty on stockbrokers. US investment advisors providing personal advice already operate subject to a fiduciary duty. US government guidance to advisors explains that “you have a fundamental obligation to act in the best interests of your clients and to provide investment advice in your clients’ best interests”.
Despite the substantial financial losses in Australia of life savings following the GFC, the federal government had its mind firmly set on watering down the recently enshrined general “best interests” obligation.
The proposed winding back of the relatively new consumer protection laws was of real concern to the industry and consumers alike.
Slater and Gordon has acted for many investors who have suffered devastating financial losses associated with inappropriate advice. Conservative investors or retirees who had invested in collapsed managed investment schemes such as LM Investments and in tax effective investments such as Timbercorp and geared investment strategies are just some of the common situations we have seen.
While the financial advice industry has been regulated in Australia for decades in different ways, our experience is that inappropriate financial advice continues to impact on investors. Consumer protection reforms should remain in place until the financial advice industry can show that it is able to provide objective investment advice that is in the consumer’s interests - particularly in circumstances where ordinary Australians implicitly seek and rely on professional advice to protect their financial future.