“I’m just a soul whose intentions are good
Oh Lord, please don’t let me be misunderstood”
— The Animals “Don’t let me be misunderstood”
Perennial Issues
In previous articles we’ve addressed advice failures and, consistently, inadequate or ineffective scoping is one of the top ten failures. More importantly, these failures (or poor record keeping) is often the underlying cause of qualitative, conduct and Best Interest Duty (BID) failures.
Too often, we only take into account scoping in the rare cases where the client does not determine the scope or where the scope of the advice is not effectively established (or agreed upon). However, the more frequent failures occur when the scope is not effectively documented or is not adequately defined, contextualised, or explained.
The latter failures are controllable. The earlier failures are concerning.
1. Who fixed the scope of the advice?
When the suggested solutions aren’t likely to meet the client’s requirements and ambitions, or important facets of the client’s pertinent circumstances, reservations about the “appropriateness” of the advice frequently surface. Although there are several strategies to deal with these assumptions, the failures prompt instant questions on the adviser’s intentions.
When it is unknown who is scoping the advice or whether the adviser has sufficiently taken into account the client’s relevant circumstances from the outset, intent and competence are default presumptions. This frequently happens when the adviser’s choices seem to be more in line with their own interests than those of their clients. The decision of an adviser to limit the breadth of the assistance requested by their client is problematic even when disagreements aren’t the root of the problem (particularly where the client has suffered loss or damage)
A financial advisor might, for instance, include superannuation in the advice but leave off insurances. Any insurances that are tied to the superannuation are lost when it is rolled over. This could be highly harmful for the client, especially if there isn’t any other insurance accessible.
There are times when it seems that the adviser has already thought of the counsel before meeting with the client. This is especially clear where the scope is produced so that standardised items or approaches can be suggested.
2. What was agreed?
It is absurd to expect a client, especially one who has never received advice, to appreciate the ramifications and repercussions of limiting the adviser’s activities or the “scope” of the advice. It makes perfect sense for a client to anticipate that their specified needs will be taken into account in addition to their specific requests.
The adviser’s responsibility is to detect, evaluate, and warn the client along the way, because they don’t know what they don’t know.
The client may be exposed to results that are not in their best interests if the scope has been decided without taking into account their requests and instructions, as well as their comprehension of the risks and consequences of their decisions to not seek guidance in specific areas. Additionally, it puts the counsel at risk of criticism, retaliation, and other legal actions.
There is a genuine risk that the advice may be insufficient or incorrect for the circumstances if scope, including implications and constraints, are not addressed clearly. In order to help the client make an informed choice, exceptional advisers take care to correctly document this element; they do this by clearly outlining the topics that will and won’t be covered (and why).
A situation where this happens is when the advice’s scope is narrowed or constrained and the file does not show that the client is fully aware of the implications. It’s unclear how the choice was made, and it doesn’t seem like the client was advised of the hazards before deciding. Both the procedure and the scoping statement within the Statement of Advice may be deficient in clarification.
3. What was explained?
As we have already mentioned, the adviser must verify the topic of the assistance being sought. This procedure must be recorded, and the adviser must, where necessary, help the client identify and set forth their needs and objectives. This covers any presumptions being made as well as the justification for leaving out particular elements.
The advice’s scope may be restricted for a variety of reasons, so it’s crucial to note any particular justifications and take these demands into account before offering the advice. When the client limits the advice’s application but it is not clear why, this is an example. Another scenario is when certain sections are scoped out without any justification.
How can you get better?
To be clear, the issue is not so much whether the Terms of Engagement are supplied as it is what is contained in them. The adviser can, for example, confirm suitability and “disclose in writing the nature of the services offered and any limitation on [their] capacity to assist” the client by including Terms of Engagement (TOE) into the scoping process.
The adviser can also address the products and services that are being excluded and explicitly define the scope in the Statement of Advice.
Let me be blunt, to scope advice better, you should put everything on the table and let the client lead the scope reduction. During the process, give the proper warnings, and take the client’s interests into account when determining the outcome.
Tips:
- Let the client be in the driver seat for the scoping discussions
- Provide the relevant warnings during the process
- Consider the risks in terms of the client’s circumstances and interests
- Document assumptions and considerations
- Integrate checklists to prompt discussions
- Reconfirm the client’s instructions and address any mismatches and conflicts between objectives, needs and circumstances
- Explain the consequences of excluding areas from scope
- Consider the appropriateness of excluding certain areas
- Clearly document the agreed scope and formalise by providing a Terms of Engagement
