“Once, twice, three times you nailed it.”
— The Commodores, “Three times you nailed it”
It’s sometimes challenging to even provide “compliant” advice in a highly regulated and frequently changing environment; we understand the pressures of having to get it right, which is why we like to celebrate when we see advisers “nailing it”.
This may be an obscure colloquialism to apply to exceptional advice but it works because it not only identifies advisers that have moved ‘beyond compliance’ but emphasises that it’s sometimes only few minor tweaks, and a little refinement, that moves sound advice to great advice.
If you’re interested in providing better advice, the only question you need to ask is what are the better advisers doing?
It’s a big topic, so let’s start with three tweaks you could make to demonstrably improve the quality of your advice.
Try a little cleanliness
“Cleanliness becomes more important when godliness is unlikely.”
— P. J. O’Rourke
You know that client records need to be kept for seven years (ASIC CO 14/923). You probably also know that there is also a requirement to keep client files “in a form that is complete and accurate” as per Standard 8.
For the most part, this is occurring, but some advisers are ‘nailing it’. These better advisers have actively considered these requirements and follow a consistent process for naming, storing and saving client documents and applying this methodology consistently
Admittedly, I prefer having the information readily available and easy to find when conducting a review. Sure, this makes the review easier to complete, but their approach was not adopted for my convenience but emerged as a reflection of their own “competence, honesty, diligence and trustworthiness” (AFA Guide).
You may dismiss this as administration not advice, but you’d be wrong to do so. Great advice is based on the active consideration of information; you handicap yourself when you can’t even locate, let alone reference, your clients’ relevant information.
Don’t presume it’s just a function of your CRM, it’s not and I’ve seen client records on planning systems that are too incomplete and disorganised to even support the provision of poor advice. Technology, after all, is only a tool.
If you want your advice to get better, start by asking whether you, or someone else in your office, could quickly locate a specific document if the client, your Licensee or ASIC requested it?
If the answer to this question is no, then maybe it’s time to make some changes.
Adopt one source of truth.
Better advisers choose an option and commit to it.
Whether it is a digital client management platform (Xplan), or a shared drive/cloud, choose one option and make this your ‘source of truth’. We’d also suggest that your Licensee have access to the chosen option.
If anyone needs anything from a client’s file, they know exactly where to go. This will make things much easier both internally and externally.
The better advisers have better practice managers and a naming convention that makes sense and is consistently followed by everyone in the office.
There are two main methods we see commonly applied, but you may have your own.
1. Segregated by document. (FSG/TOE/fact find/Risk Profile etc).
2. Segregated by action. (Engagement/discovery/research/advice/review etc).
Market did a bad, bad thing
Considering ‘worst case’ scenarios and addressing potential obstacles
There is no one strategy or product that will satisfy every client’s objectives, needs and relevant circumstances. In fact, there is often a range of products and strategies that need to be considered.
The beauty of advice is that one client can see more than one adviser, receive differing recommendations, but still receive appropriate advice which satisfies their objectives, and is likely to place them in a better position.
Good alternatives help prove that the advice is in the best interests of the client and that the client’s interests have been prioritised.
In my experience, the better advisers consider and test multiple strategies and products, they follow a structured process, documenting their findings as they go.
- Always place the client’s circumstances, needs and objectives at the centre of the advice.
- Outline what strategies and products were considered.
- Explain why they were considered.
- Address why their existing arrangements will not satisfy their needs (rather than reiterating why the recommended strategy/product is the best).
- Save all supporting information on file
Better advisers also consider the client’s relevant circumstances and broader implications (Code of Ethics Standard 6) by identifying any future potential obstacles and consider any relevant ‘worst case’ scenarios that may arise. There are no crystal balls, but if the advice process itself is methodical – and based on a thorough understanding of the client’s relevant circumstances – consequences, implications and alternatives will be easier to identify.
Incomplete or inaccurate information was explicitly and effectively addressed
“Don’t say I didn’t, say I didn’t warn ya”
— Taylor Swift CFP, “Blank Space”
Where your advice is based on incomplete or inaccurate information, the law requires that you warn your client of that, for these reasons, your advice may not be appropriate (and they need to consider your recommendations in light of their own knowledge of their circumstances). If, for any reason, you can’t obtain all the information you need, you can still provide advice, as long as you warn your client that the advice may not be appropriate. But, before we go on, please appreciate that you have an obligation to make enquiries to obtain the information you need, you cannot simply limit yourself to what you’re told or rely on disclosure to limit your liability; you must first ask, test and validate the information on which you’ll rely.
Most advisers make reasonable enquiries to obtain complete and accurate information about the client’s relevant circumstances prior to providing advice and then rely on the standard warning that comes within the template as it is. This is OK if there is evidence that duties were fulfilled.
961H(5) actually states that nothing affects the duty of the adviser to make reasonable inquiries. The warning does not take the place of the obligation itself.
Rather than rely on the standard warning, better advisers clearly articulate within the file what is missing; what was done to try and obtain it; and then personalise the warning itself. Instead of an abstracted and ambiguous disclaimer, they provide their client with a clear (and meaningful) warning with enough context to ensure their client understands the problem and the risks of proceeding on the basis of flawed or limited information.
What this does (when it is executed well) is provide personalised information and context, which clearly highlights the risks and implications of the client’s decisions, and relay how the adviser has considered their impact consistent with their Best Interest Duty and the Code of Ehtics.
- Record pivotal conversations
- Retain evidence of the inquiries within the file
- Outline why it is still appropriate to give the advice
- Record considerations
- Personalise the warning