E is because you act so ethically

O is you’re the only adviser for me

F is very, very financially discerning

Y is yes, you meet all my needs and goals

Michael Bublé ‘E.O.F.Y.’

The new financial year is well underway, and what better way to celebrate than to call out a few things we found under the ‘Christmas in July’ tree? We looked through some of last financial year’s results and found a few gems we’d like to share. 

Undoubtedly, most advisers we work with strive to do better every day. They actively seek guidance on their processes and ways to improve because they want to give their clients the best advice they can—the pursuit of excellence. Advisers are continually striving to refine processes, deliver value, and maintain trust.  

The trouble is that it requires a higher level of commitment, time, and focus, and advisers may not always want to hear this. 

The landscape changes so frequently that more time and effort are needed to provide good advice. Preparing advice takes more time and resources, and the information needed to provide it can be a little overwhelming sometimes. The reality is that it does take more work to be better. 

Doing what has always been done may (mainly) satisfy requirements, but whether they are ‘best practices’ will be assessed at an individual file level. This article explores some key areas where advisers can elevate their game. 

The adviser has explicitly and effectively addressed the incomplete or inaccurate information.

“The ability to ask questions is the greatest resource in financial advice.”

– Carl Jung (CFP)

As per s961B, advisers must make reasonable inquiries to obtain complete and accurate information. If the resulting advice is still based on incomplete or inaccurate information, the adviser must warn the client, as per s961H. This warning can be provided in the SOA. The template will usually include this, which is a good starting point (as long as the file indicates reasonable inquiries into the client’s relevant circumstances were made). 

However, there are some circumstances where more may need to be done, and the limited information warning may need to be expanded, personalised and made more prominent (depending on where it is in the template). 

Advisers must make reasonable inquiries to obtain complete and accurate information about the client’s relevant circumstances. If these inquiries are made and the information is still incomplete, a warning can be provided that the resulting advice may not be appropriate. 

The file needs to evidence these inquiries, and more than relying on the warning is required to meet duties and obligations. 

An objective test will need to be conducted to determine what is reasonably apparent, and this will change from client to client depending on the client’s relevant circumstances. More complex circumstances may call for more comprehensive inquiries.

As always, if the adviser feels that more information is needed to provide advice, they can decline. In some circumstances, this is a prudent approach, but it will be based on the adviser’s professional judgement, understanding of duties and obligations, and the client in question. 

Best practices:

Advisers who excel in this area exhaust the alternate methods of obtaining the information and include notes within the file as to what was done to obtain it, considerations in relation to its possible effect, and why the adviser believes that the missing information will not materially affect the advice provided to the client. 

They also personalise and expand the warning, citing specifics and the potential implications of not providing the information. 

TIPS:

• Record meetings and client discussions in detail, referring directly to the inquiries, client responses and any additional steps taken.
• Provide requests to the client (and other professionals) in writing and save on file.
• Obtain third-party authorities and obtain the information directly from the source (where possible). 
• Go above and beyond by exhausting all avenues to obtain the information. 
• Document considerations when determining the materiality and significance of the missing information. 
• Document the consideration of the impact of the missing information and why it is still appropriate to continue with the advice.
• Provide an engagement letter outlining the scope (and whether it’s affected by the missing information).
• Personalise the warning in the advice document, highlighting the risks and implications and making it prominent. 

This way, the adviser can meet their duties and obligations, and the client will have an opportunity to understand the gaps, risks involved, and the adviser’s concerns. Hopefully, this results in a better client experience, better advice, and better-informed decisions. Financial advice is a journey that starts with a great discovery process.

The advice document assessed the client’s environmental, social or ethical concerns.

“Do not put all (sustainably and responsibly sourced, animal welfare-conscious, equal opportunity) eggs in one basket.” 

– Warren Buffet

Advisers have a professional and ethical obligation to consider their client’s financial and non-financial concerns when providing advice. When it comes to environmental, social, and ethical concerns, some advisers don’t ask, some tick a box (and not much happens afterwards), and some make more inquiries to figure out what the client is looking for.  

Ethical investing is primarily focused on selecting investments that align with the client’s personal, moral, and ethical beliefs. This may include considering a company’s actions regarding social issues (tobacco and gambling), animal welfare (product testing), and human rights (labour practices). 

Sustainable investing primarily focuses on selecting investments that align with the client’s beliefs from an environmental, social or governance (ESG) standpoint. This may include consideration of a company’s impact on the environment (renewal energy), communities (labour practices) and how it is managed internally (equal opportunity). 

In both instances, this is usually approached by avoiding companies with poor practices in these areas or seeking out companies contributing positively.

Best practices:

Some advisers excel when they drill down with the client and find out exactly what they want. In circumstances where the client’s knowledge may not be comprehensive, provide some education on this method of investing and some of its limitations. This may include fewer options, less diversification, and potentially lower returns, as well as increased volatility and higher costs. 

Greenwashing is also discussed as a relevant consideration, and additional research is conducted to mitigate risks. 

TIPS:

• Identify and consider subject matter, scope, client objectives and preferences.
• Explore client drivers and consider these when researching. For example, does the client want to avoid certain practices or actively seek positive impact?
• Discuss some of the limitations and the client’s understanding of these. It’s very rare, but we do see clients explain to advisers that they want to invest ethically or sustainably. When they get more of an understanding of what it involves, sometimes, they shy away. 
• Research viable options and document the process (beyond a WealthSolver). 
• Clearly articulate reasoning for the selected approach in the SOA, highlighting relevant risks and discussing them at presentation time. 

Advisers need to consider the client’s goals, needs, and objectives. Asking more questions to uncover preferences and drivers will help advisers meet their duties and obligations. From a client perspective, there is an opportunity for a higher level of engagement with their adviser and the advice provided. If the client has as much input as possible, the adviser and client can create a masterpiece. 

The standard document was made clearer, more concise or more effective

“In labouring to be concise, I become obscure.”

– Quintus Horatius Flaccus ‘Horace’

An adviser in today’s industry may struggle in the same way our Roman poet did all those years ago, for there is a very fine line between clarity and brevity and a fine balance between compliance requirements and client understanding. As per 947B(6), the SOA must be clear, concise, and effective, which can be a little difficult with the opposing forces in the financial services industry. 

At first glance, you may think this is easily achievable given the law’s flexibility – specifically concerning s947B, s947C and s947D – but this still causes advisers and licensees to lose sleep. The industry still grapples with competing views on SOA content, and the fear of getting it wrong usually results in more things being included in the SOA (when less would be better). It is better from a client experience perspective and more economical, as digital ink is in short supply.  

Disclosure and indecision are usually the culprits, and while it is an integral part of the process, it should not be the focal point because it is of little value. The cynical view is that nobody reads SOAs anyway, which may be reflected in ASIC’s SOA (RG90.47), so why all the fuss? ASIC admitted, “Some people may only skim the document and engage with specific sections.” This can be problematic, but I believe an adviser with a high level of engagement with their clients and an effective SOA will have less to worry about. 

Some advisers make efforts to avoid the repetition of information by exchanging generic risks and implications with relevant considerations for their clients, saving the realms of research and cash flow figures in the file, and providing explanations that are personalised and directly linked to the client’s relevant circumstances; examining and interpreting the loss of benefits and charges incurred etc. They make the whole process more engaging by removing unnecessary jargon, including only what’s relevant, and they incorporate by reference. 

We understand that some advisers may not have control over their templates, and we can’t do much about this other than suggest the adviser speak with their licensee if they have issues presenting it or the client has difficulties understanding the content. 

Best practices:

Advisers who do have control (and make client-centric changes to the content) routinely engage with their clients at a high level and have supporting material and documents within the file to back up their advice. Rather than relying on the quantity of information, they rely on the quality and keep the rest on file (after consideration). 

When we see this done well, it’s a cause for celebration. We spend a lot of time reading advice documents, and if we’re falling asleep or can’t figure out what’s happening, the client will likely feel the same way. 

The reality is that advisers who nail this aspect of advice consider what will go in the advice every time, and they base this on the client’s relevant circumstances rather than what the software produces. The software likely has the core elements, but the personalisation and colour will come from the adviser’s understanding of the client’s circumstances and their awareness of what the client needs to know. 

TIPS:

• Conduct a thorough (and engaging) discovery mission. 
• Keep client-centric file notes.
• Explore options with the client collaboratively.
• Record things in the client’s own words.  
• Provide formal documentation early (such as an engagement letter or equivalent) and incorporate by reference. 
• Critically assess processes and documentation and ask whether the SOA says what it should. 
• Personalise the commentary and remove jargon, generic text and unnecessary information. 
• Give the SOA template to an external consultant for feedback.  

SOAs are roadmaps, showing (and explaining) how clients can reach their goals. In order for a client to provide their free, prior, and informed consent, they need to understand what’s in front of them. If the advice document is simpler, more effective, and user-friendly, the chances of this occurring are much higher. 

And a final word – embrace technology. In today’s world, leveraging technology and utilising online tools and interactive software can significantly improve the advice process. It can enhance clients’ engagement and discovery process and free up time for advisers to do what they do best. Technology can enhance the process, and a continual improvement mindset will improve the advice. 

Meeting expectations is required. Exceeding them builds lasting relationships with clients, improves trust and improves the financial services industry as a whole. 

Drop us a line at help@assuredsupport.com.au

We’d be happy to help. 

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