A legal expert has called for the “catch-all” clause in the Future of Financial Advice (FOFA) legislation to be retained, because it enhances professionalism.

Monash University Department of Business Law Associate Professor Paul Latimer says calls to abolish the clause are “a cause for concern”.

“FOFA has presented the financial services industry with an opportunity to take one more step towards professionalism of the industry,” he says in a submission to the Senate Economics Legislation Committee’s review of the FOFA amendment bill.

“It should be cause for concern that some in the financial services industry have attacked the ‘catch-all’ duty on the grounds it makes the best-interests checklist uncertain.”

Professor Latimer rejects claims that the catch-all clause would prove difficult for advisers and they should instead rely on the best-interests duty checklist.

“Compliance with the checklist by box-ticking potentially takes away the responsibility of advice providers to exercise their own judgement. The danger is [the checklist] could be seen as no more than a safe harbour for formal compliance by box-ticking.

“This highlights the importance of the catch-all to keep the box open for professional and independent judgement.”

Professor Latimer says there have been concerns the catch-all provision will create legal uncertainty.

“This open-endedness in the best-interests duty is exactly what the ‘any other step’ requirement is supposed to do. It removes a static and inflexible advice model (box ticking) that may fail to take full account all of the client’s relevant circumstances.”

Professor Latimer says the effect of removing the catch-all may not be apparent until the next investment cycle failure and an inquiry is held as a result.

“Instead of the ‘any other steps’ being criticised by some in the financial planning industry as too ‘vague’, the financial planning industry should embrace this and the other FOFA reforms.”