“where is the knowledge we have lost in information?”
— TS Eliot
The focus of great advisers
In our experience, too many advisers limit their potential by pursuing the wrong goals.
We’re not talking about portfolio construction and asset allocation.
Instead, we see advisers obsess over the length and structure of their Statements of Advice.
They rail against ASIC, lawyers and licensee standards instead of focusing on the more substantial issue; how can they ensure that their recommendations are properly understood and that they secure their clients’ informed consent.
In fact, their anxiety masks a more important concern.
Engagement
Character, not compliance
It’s easy to miss, but there is a paradigm shift occurring.
Regulatory and community expectations have moved beyond disclosure and disclaimers to demand that advisers rethink how they engage with their clients.
Like it or not, if you’re an adviser, you’re being asked to consciously address asymmetries, focus more on engagement and consistently labour to ensure they understand the recommendations; understanding is the foundation of free, prior and informed consent.
Even before they began to gently chide the advice industry for its conservatism and risk aversion, ASIC recognised, and foreshadowed, the need for the shift from disclosure to care.
Last year. ASIC released report 632 – ‘Disclosure: why it shouldn’t be the default’ – a persuasively showed why relying solely on disclosures and warnings and regulated documents doesn’t promote either engagement, understanding or consent.
In fact, it’s largely ineffective and a poor strategy.
Not only in respect of complex products and complicated strategies, but also for simple matters that simply don’t interest consumers.
Read REP632
The report, and the research on which it relies, highlights that clients don’t engage and process information, how they make decisions in different environments and that having high levels of literacy, numeracy and education does not always equate with better understanding and better decision making.
When consumers need to make decisions about financial products, they often struggle to differentiate good from bad deals, particularly when they have to consider more than two or three product attributes.
Consumers are also fatigued by warnings and disclaimers, and desensitised to receiving and interpreting important information.
The conclusion of the report should encourage you to abandon your “paper shields”; don’t hide behind technical compliance and disclosure obligations but, instead, find better ways to meet the needs, capabilities and expectations of your clients.
In fact, The Household, Income and Labour Dynamics in Australia (HILDA) survey 2018 says that half of all Australians struggle with financial literacy.
In ASIC report 481, “Australian financial attitudes and behaviour tracker” identified that only 25% of Australians have a long term financial plan.
Less than 50% have a 3-5 year financial plan.
Only 40% of Australians report an understanding of the principle of diversification and only 33% understood the concept of risk/return trade-off
read rep 481
Understanding
“Clear, concise and effective presentation of SOAs promotes understanding of advice by retail investors. We consider that the presentation requirements are as important as the content requirements in preparing an SOA”
— RG 175.203
Community expectations have changed; the FASEA standards nudge advisers to move beyond disclosure to focus on securing their clients’ free, prior and informed consent.
It may seem no change at all but, in fact, it’s a significant reorientation.
Disclosure may be necessary, but it’s not enough to ensure your clients understand the benefit, consequences and implications of your recommendations. Nor does their signature on the Authority to Proceed prove their informed consent.
More is required.
This may be a challenge for some, but the better advisers we’ve reviewed focus on securing real engagement and pursue their clients’ consent purposefully and methodically.
Their focus is less on the warranty document than on their client’s ability to comprehend the nature, implications, costs and benefits of their advice.
It seems simple, but success requires considered practices, imagination and a willlingness to embed the FASEA standards into their operating rhythm.
We see many advisers failing to effectively implement the FASEA Standards because they’ve dismissed them as simply more compliance.
They’re sabotaging themselves by interpreting the FASEA Standards, particularly Standards 2, 5 & 7, as matters that can be satisfied with more disclosure, more file notes and longer SOAs.
We don’t concur with this sentiment.
We believe that the Standards will reshape the future advice by reshaping the practices of advisers.
Consent
“The purpose of an SOA is to communicate to the client important and relevant information about the advice being provided to enable the client to make an informed decision about whether to act on the advice”
— RG 90.14
Best practice advisers understand this backdrop and understand the significant advice opportunity in front of them.
The clear difference between these advisers and the majority of their peers is that great advisers view their SOA as a tool of engagement in an overall tool kit, rather than just meeting a compliance tick box.
They proactively demonstrate how they work to validate client’s level of knowledge, understanding and engagement with their advice.
For example, they have a very structured upfront client discovery and education process and are forensic at getting to the heart of the advice they are providing, that by the time they get to the SOA, the SOA is essentially a succinct summary of a deep collaborative information exchange and discussions about possible solutions, rather than it being a starting point.
To explain this a little further, they delve deeply to understand their clients in terms of who they are, what they are wanting to achieve and what their underlying drivers are. They often utilise values-based questionnaires, PowerPoint presentations, webinars and zoom meetings to supplement fact finds and invite family members and integrated specialists into the advice process as required.
These advisers are really clear on how they can help take clients from where they are, to where they want and need to be and can easily convey their value proposition for the fees required to improve a client’s overall financial wellbeing.
Essentially, great advisers guide their clients from information to insight; from data to wisdom.
Tools, tips and templates
So how do the best advisers manage engagement, understanding and consent?
Practically, the better advisers use graphs, mind-maps and tables as alternatives to dense text and long paragraphs.
They generally summarise well, condense and tailor information and filter out irrelevant data.
They often use links and references to working papers and they use their research and modelling to formulate viable alternative options and alternative strategies.
They pro-actively use financial planning software to update client data to ensure ongoing service is a cost effective efficient process for goal tracking.
Overall, we’re seeing an industry moving (at an inconsistent speed and without obvious intention) away from seeing an SOA as evidence of just compliance to an SOA facilitating comprehension.
Although it’s an essential transition, it’s not an easy transition.
If you need help with how your advice process is aligning in this way, reach out to us here at Assured Support.
