“You may act for a client only with the client’s free, prior and informed consent. If required in the case of an existing client, the consent should be obtained as soon as practicable after this code commences.”
— FASEA Standard 4
FASEA: Putting the FUN back in Fundamental since 2020
FASEA Standard 4 requires that you only act for a client after you have explained (clearly and simply) what services will be provided, the terms of these services, and how information will be stored, relating to privacy and confidentiality arrangements.
If it’s an existing client, then this needs to be done as soon as practicable. You are also required to have reasonable grounds to be satisfied that this has been done.
Client care and transparency are the key aspects here. A well-informed client who is engaged with their adviser will be able to make better decisions in relation to receiving advice. It may also allow a client to decide not to receive advice if there is something disclosed to them initially that they are concerned about. The client must also be making their decisions without any coercion from the adviser.
The trouble is, not all advisers are recording this process in much detail.
941D and a cherry on top
The law requires you to provide the client with a copy of your Financial Services Guide (941D). This must be given to the client as soon as possible after it becomes apparent that advice will be provided. Advisers usually save evidence of this occurring on file.
The free, prior and informed consent aspect comes from understanding. If your FSG is sent via email then you’ve satisfied your obligations in relation to 941D, but there may be some concern as to whether you’ve satisfied Standard 4.
““Look, maybe I didn’t say every single little tiny syllable, no. But basically I said them, yeah.”
— Ash Williams, CFP
We’d suggest taking an additional step and having a discussion with the client, and recording it. This would be an opportunity to explain key information within the FSG, allow the client to ask questions and also to provide any further information if needed.
We don’t necessarily need War and Peace, so a brief outline of the process will suffice.
Setting the scene
Determining the services which will be provided to your clients is a delicate process that needs to include a hefty amount of professional judgement. Acting upon the client’s request in isolation is a risky approach, yet so is ignoring the client’s relevant circumstances and providing advice they can’t understand or afford.
The problems we see in relation to scoping generally appear when this process is not documented sufficiently. Relevant areas suddenly disappear, or identified needs are simply overlooked. We sympathise that the level of information which is saved on client files now has increased and advisers feel that they are doubling up. If only there was a way to capture this process in one document.
We are huge fans of Engagement Letters. When they are constructed well, they are engaging, informative, insightful and set the scene.
There is no better way to outline the services which will be provided, the cost and the terms of the agreement itself.
Tick, tick, tick, tick…Boom!
Having reasonable grounds to be satisfied sets a standard that is above and beyond the ‘tick-a-box’ approach. There needs to be some justification and evidence to support the adviser’s belief that the client’s free, prior and informed consent has been obtained. If a reasonable person was to view the information on file, they would also need to come to that conclusion.
While we suggest that it is beneficial for advisers to have checklists to remind them of what needs to be done, this shouldn’t be the formula and conclusion.
We’d suggest moving away from relying upon box-ticking as the primary source of evidence in satisfying FASEA obligations. We are in a financial services world where disclosures count for little in the absence of engagement and understanding.