Top 5 tips for financial planners


The Credit and Investments Ombudsman (CIO) deals with complaints about Australian financial services licensees and their representatives. By far, the most common complaints relate to inappropriate advice provided by a financial adviser.

Whether you are new to the financial advice profession or a seasoned advisor, here are our top 5 tips for avoiding or responding to a complaint:

Identify the client’s goals properly
 

Properly identifying a client’s goals will assist in demonstrating how your advice will help the client achieve those goals. For example, if a client wants to 'retire comfortably', what does this mean for that particular client? What retirement income do they consider comfortable? How does this compare to their current spending? When would they like to retire?

Where possible, keep records of the client’s own words in their own handwriting. Avoid generic, cookie cutter 'goals' which may be considered to have been designed to fit a particular result, such as 'to save tax via an investment in alternative assets'.

Demonstrate how the advice will assist the client in achieving their goals

Connecting the dots from goals to advice helps demonstrate that you understand the client’s goals, what is required to achieve them, and the steps necessary to get there. For example, if a client wants to retire at age 60 and spend $50,000 pa, is this already achievable within their current position? How have you determined this? If not, what are you recommending the client do about it? Will your advice achieve the client’s desired position? How have you demonstrated this? What other options have you discussed with the client: for example, can they achieve the same result by working another two years, or by spending $5,000 less per year?

Identify and explain any obvious inconsistencies or anomalies

If elements of your advice would appear inconsistent with other information, you may need to specifically address this and provide further information to justify the reasons for your advice. Examples may include recommending gearing for a client with a “balanced” risk profile or recommending that a client with a small superannuation balance establish an SMSF.

Don’t rely on generic disclosure to explain risks

ASIC’s RG 175 says that advice providers cannot rely on disclosure to avoid their obligations – in other words, the advice must inherently satisfy the obligations and cannot be 'rendered' appropriate simply by disclosing the associated risks.

Make the disclosure relevant to the client’s situation, and to the advice you are providing. For example, a statement describing the fall in investment markets required to trigger a 'margin call' for the client’s particular portfolio, the additional funds required to be provided by the client if this occurs, and the fact that the client does not currently have these funds available and would be required to sell the investment for a loss, provides context to the advice and the potential consequences of the recommended strategy. However, a generic discussion about the risks of gearing is unlikely to convey the same level of meaning to a client.

File notes, file notes, file notes!

Documents and records created at the time of the advice ('contemporaneous') are often a more reliable source of information than a person’s recollection some years after the event. As such, we generally give contemporaneous information more weight than statements made by the parties after a complaint has already been made.

We find it uncommon for an adviser to meet a client, collect some basic information and then go away to create the advice without any further discussion or clarification. The process of determining appropriate advice for a client can require several discussions to clarify and refine the strategy, before arriving at the final recommendations. A file containing records of these discussions demonstrates a believable process of meeting the client, establishing their goals, discussing the options, determining an appropriate strategy, presenting the advice to the client, and discussing the risks, rather than a file containing only a Fact Find, a Risk Profile, an SoA and a product application.