“But I still haven’t found what I’m looking for”
— Senator the Hon Jane Hume, Minister for Superannuation, Financial Services and the Digital Economy (or U2)
Looking in the wrong direction
Section 961B paints with a broad brush, and requires a hefty reliance on professional judgement.
Like most things in financial services, the grey areas can make or break good advice and the terms ‘reasonable’ and ‘relevant’ can be open to interpretation. Like most expert Compliancers©, we view each file on its own merit and base our decisions on its contents.
Much like advisers in a sense, we assess each situation in context, give it specific consideration and ensure it reflects (and is supported by) our data, documents and understanding.
Practically, if your client file is incomplete, then it makes it difficult (and sometimes impossible) to understand your intent and your reasoning and assess the appropriateness of your advice.
A properly completed Fact Find helps structure and document your discovery process.
I accept that the Corporations Act doesn’t require (or even recognise) a “Fact Find” but it does require you to identify the objectives, financial situation and needs of your client; the subject matter of the advice being sought (whether explicitly or implicitly); and their (reasonably relevant) objectives, financial situation and needs.
That’s great, but why do the objectives, financial situation and needs have to be identified twice?
They don’t, (sort of), but it’s a multi-stage process.
The first step is to correctly identify (and record) these through instructions. The second is to identify these in relation to the subject matter of the advice being sought – they may change depending on the subject matter and adviser identified needs.
As we have addressed previously, the subject matter of advice evolves as the advice process progresses and this requires further examination, validation, consideration, and usually the expansion of the inquiries. The law also requires that the provider considers whether the relevant information is incomplete, or inaccurate, and takes reasonable steps to obtain this.
FASEA Standards 2 and 6 are linked to this stage of the advice as they reference Best Interests Duty and the client’s broader, long-term interests and likely circumstances.
If you wanted to get down to the nitty gritty, you could also consider Standards 1, 5 and 8 as being involved also. Respectively, these reference the Law, appropriateness and completeness of the file.
So, with the engagement and discovery phases of the advice process holding so much weight in the outcome of the advice itself, why do some advisers spend so little time in this area, or leave aspects to chance?
We thought we’d take a look at some of the frequent concerns and questions we receive from advisers.
Scoping plays an especially important role in the determination of whether the advice is appropriate and, in the client’s best interest. Without adequate recording of relevant circumstances, appropriate scoping is impossible.
A well-constructed and recorded fact find are indicators of an adequate discovery process and as the old saying goes, if it’s not in the file, it didn’t happen.
Proper mapping (and alternate directions)
“You never know what is enough unless you know what is more than enough”
— William Blake CFP
Can I write a file note instead?
Yes, you can use file-notes instead of a fact find (there is a big BUT though).
Can all the client’s relevant circumstances be adequately recorded in a file note?
The problem with an organic/unstructured file note is that the flexibility it provides also create some significant risks for both the client and adviser.
In the absence of a structured process, an adviser’s process has to be more disciplined and more considered because there’s no safety net of prompts and checks. A Fact Find, like any checklist, can reduce complex processes to manageable stages, focus your attention and highlight relevant considerations.
“Providing financial advice in a frequently changing and highly regulated environment requires high levels of courage, skill and expertise. It’s like trapeze or high-wire work in that respect, and your fact-find is your safety net. You can perform without it, but you’ll need to be alert and focused, because any mistake can have significant consequences. ”
— Sean Graham, Assured Support
Using a file-note instead of a structured fact find document allows for a more organic discovery process, but it’s a difficult thing to master and self-defeating unless you’re disciplined and unless your processes and supporting mechanisms are sound.
Your technique needs to be air-tight before you should consider this approach.
At the end of the day, it doesn’t really matter how the information is recorded (this is obviously within reason and professional judgement applies here), but that relevant information is recorded and that the recorded information supports the advice that was provided.
Having said this, some Licensees require a fact find to be used. Sometimes it’s a particular version with specific instructions. Others Licensees vary their requirements according to the skill (‘compliance rating’).
We recommend that you follow the approach that works best for you and your clients (but check with your Licensee first and follow their guidance).
If you want go commando on your discovery, then ensure your file-note itself includes prompts for reference and provides the ability to record validation, verification, and consent.
Ensure that there’s scope for additional documents to be attached, along with a reference point.
For example, after discussing your client’s superannuation with them record the basic details including education, objectives, preferences and understanding and incorporate the factual data by noting “refer to XYZstatement01012021” .
Our file-note template
Paper based fact finds are cumbersome. Do I have to use one?
I agree. Paper based files are cumbersome in general.
Many moons ago, I remember an adviser who would carry around a suitcase about the size of those you are allowed to carry on to the plane, with a handle and wheels on the bottom. Each day it would be filled with the files of the clients they were seeing and it never left their side.
Aside from the potential security and privacy nightmares, this approach would have been extremely difficult to maintain during COVID.
Paper based fact finds still have their place within some organisations, but there are a huge range of options out there now.
From what we’re hearing, those clients who preferred paper documents and similar processes originally, have become quite tech-savvy during COVID.
Another view is that engagement can be hindered by the paper based fact finding process.
Some advisers have made great inroads with their clients by using interactive tools at the engagement and information level. Instead of watching the adviser fill out a form when they are talking, the client is involved in the whole process from the beginning. As advisers step through the digital fact find, organic conversations are occurring and the engagement level is naturally higher. The discussions are centred around what is being recorded, rather than ’20 questions’.
Why should I have to record everything twice?
You shouldn’t and you don’t have to.
Advisers frequently relay concerns that they feel like they are doubling up. Figures and facts recorded in the fact find, then saved on file in the form of a statement, or third-party questionnaire.
My response to this is two-fold. Think about the role of the fact find itself and how it is used within the business. It’s about having prompts for the adviser and providing a space to record the information from the discussions and circumstances. Some advisers need this structure, whereas others don’t. This all comes down to preferences and execution.
Secondly, not every page has to be completed in full. As per the file note comment, if an alternate document is being used, providing reference to this is sufficient. If this area is struck through (not applicable), or not in scope, then the notes can reflect.
The easiest way to approach it is to consider whether the information can be obtained from other sources in the file, such as statements, third-party authorities or payslips. If so, then the adviser may choose to record the basic information in the fact find with a reference. If the information can’t be sourced elsewhere, such as family situation, estate planning details or property assets, then the fact find may be the best place for this to be recorded.
It takes a long time to complete. Can’t it be more efficient?
“Rome wasn’t burnt in a day”
— The Treasury (may be apocryphal)
I agree that it is difficult to start from scratch with each client and a blank canvas as the primary tool but Rome was neither built nor burnt in a day.
With the cost of providing advice on the rise, it’s natural for advisers and licensees to pursue hacks or process efficiencies.
Depending on circumstances, it may be better for some advisers to make their (prospective) clients more active participants in the advice journey. For example, you could ask them to obtain (and provide to you) relevant information (statements) prior to your meeting, access specific tools or complete background material (key information and risk profiling) before you even start the climb to the high wire.
When this is done early enough, it not only ‘gets the ball rolling’ but frees you to focus on the subjective issues; their hopes, preferences and objectives. Rather than spending time drawing financial data from an unprepared, disengaged and generally unaware client, you can do what you do best by identifying (and then addressing) their underlying concerns and drive.
There’s merit in utilising an online, or digital tool for this purpose too. Obviously, you’d need to consider the costs involved and the nature and scale of your business, but the advantages might be significant. Some tools allow synchronous access to both the adviser and the client, and this ensures that information can be updated regularly and time stamped by either party.
Compliance might not be the first reason to take this approach but consider how much simpler your review would be if you use an application that tracks changes and assists with validation, consent and accuracy.
If you’re wondering what technology might help you, we’d refer you to the NetWealth AdviceTech 2020 report. We’ll exercise our customary neutrality [Compliancers© are the Swiss of the financial services industry – Ed] but recommend the report to you as an accessible insight into the digital and online space.
You can read it here.
Netwealth Advicetech Report
Here be dragons
“It is not enough that we do our best; sometimes we must do what is required”
— Winston Churchill, FChFP
Call me romantic, but I think a good fact find tool can be of tremendous assistance to an adviser when it’s used correctly.
It’s a very valuable from an engagement perspective; it prompts conversations and is a foundation document on which all your strategies are built. It can also become a road map for the file as it may reference additional documents, along with their location.
It doesn’t have to be in paper form, but it has to be comprehensive.
It should hold the core data that has been provided by the client and sought by the adviser. It should also reference external sources of data if it is stored elsewhere, as well as an indication as to whether certain areas are excluded.
Advisers often gripe about having to record information twice, but the reality is that this is not necessary. One or the other is sufficient, but it’s when areas are left blank and information can’t be found in the file that concern arises.
Don’t confuse your fact finding process itself with your fact find document; the document is a necessary, but not sufficient, component of effective fact-finding. It’s a piece, not the solution. And, while you’re at it, don’t confuse fact-finding with discovery, engagement or understanding.
There are limitations in just about all discovery documents and processes and it would be naïve to rely on any one document to satisfy the ‘know your client obligation’ or capture the nuances and emotional detail that great advice encompasses.
Rarely do these documents contain an exhaustive list of what should and should not be needed for the advice at hand. Objective facts are great for the tools and calculators being employed during the advice process, but what about the client perspective and emotional position? A robust and considered fact finding mission should also contain supporting notes that contain these equally important aspects of circumstance and the adviser’s consideration of these elements.