Academic journal article Australasian Accounting Business & Finance Journal

Lessons about Best Interests Duty

Academic journal article Australasian Accounting Business & Finance Journal

Lessons about Best Interests Duty

Article excerpt


Individuals face a number of financial and non-financial risks over their lifetime, especially concerning implications of longevity and adverse health. These risks can be exacerbated by a combination of complex rules and a large number of options for financial wellbeing, low levels of financial literacy, and a growing shift away from government- and employer- provided support towards greater self-sufficiency in retirement.

As such, the need for professional financial advice is apparent for many individuals. However, recent cases have highlighted the high levels of distrust that many people have in the delivery of such professional advice, complicating the provision of financial wellbeing further for those who would otherwise benefit from informed and impartial advice.

Recent regulatory proposals and debate have centred on various aspects of what constitutes 'good' advice, couched in terms of a 'best-interests' duty from the adviser to the customer. However, financial advice is essentially a credence good whose value is hard to assess, which presents a real challenge in being able to determine what is meant by 'quality' and 'best interests' in terms of advice.

By referring to recent events and in particular the high profile collapse of Storm Financial, we describe in this paper some features that are generally considered as examples of poor quality advice. We use a qualitative methodology, based on data sourced from a Parliamentary Inquiry, as well as interviews with ex-Storm advisers and investors. In doing so we offer bounds on what quality can be represented by, and outline factors that can be considered by individuals when assessing the quality of any advice being offered.


In this section we outline the main features of the Australian system of financial provision, particularly in regard to saving and living throughout retirement. We begin with an overview of the 'system of pillars' of retirement saving, and then discuss the issues of complexity, the trend to self-sufficiency, and the importance of and shortfalls in financial literacy.

A system of pillars

Financial security in Australia, in the context of savings and provision over a lifetime and particularly for retirement, is essentially built on a system of 'pillars'. The first of these is an age pension, which is subject to two means tests - one based on assets, the other based on income. The pension payment is at the rate which is the lower that results from each of these two tests, with the full age pension rate generally accepted to be close to a rate that could provide for a modest lifestyle (RWA 2012). A second pillar is a mandatory retirement savings scheme, paid as employer contributions that are currently a minimum of 9.5% of salary. Pillar three consists of voluntary and private savings, with any contributions at the discretion of individuals, and/or employers. Via the use of advantageous tax breaks, there is strong encouragement for these extra savings to be allocated into superannuation accounts (Taylor and Wagland 2011).

Alongside the growth of superannuation savings arising from the SG has been the decline in employer-sponsored defined benefit (DB) schemes. In contrast to DB schemes, the SG is primarily a defined contribution (DC) system, which specifies the level of contributions made to an individual's superannuation fund(s). Investment choices reside with the individual and with no pensionable income being specified, the 'sufficiency' of a DC scheme in terms of retirement income is not a responsibility of sponsors.

Complexity, choice and self-sufficiency

The Australian financial system is considered to be very complex, due to many factors relating to tax; changes and choices within superannuation and its interaction with the other pillars; insurance options and platforms3; the structuring of debt arrangements4; and aged care provision which depends on factors such as assets, income, and the required standard of care (Chardon 2011, McKee 2010, RWA 2012). …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.