Melanie Purdey of Compliance Refinery says too many advisers are caught out at review time because they lack clarity about what they are being asked to do by their clients…

Due to the specialisation of the financial advice industry it is rare for advisers to provide their clients with comprehensive advice on all areas of financial planning.

As a result, there are usually limits on the scope of advice being provided when it comes to specialist areas such as insurance, investment planning, and mortgages. This doesn’t mean the advice being provided is not comprehensive on the areas within scope, more that advice will normally be limited to specialist lines.

There are effectively two types of limitations:

  1. Adviser limitations regarding which specific providers or qualifications they may have
  2. Client-driven limitations where the client has placed limits on the advice one can provide to them

As a rule of thumb, think of the scope as ‘what, exactly, have I been asked to do?’.

Therefore, one needs to be vigilant and make sure the scope is clear and understood by all parties, which includes ensuring clients understand that limiting scope has implications and risks – and that it informs the client of the financial adviser’s obligations.

While it is critical to keep in mind the standards for fairness, integrity, suitability and understanding, it may help to recall that in Code Standard 1 of the Code of Professional Conduct for FAS regarding Treat Clients Fairly, it reads: “Treating clients fairly does not mean that clients are not responsible for their own decisions or that they are not exposed to risk.”

We’ve noticed that advisers who manage the scope conversation well can generally articulate the importance of following the advice process and how it will impact the client actions.

For example, when a client comes in saying they ‘just want a quote for $500,000 of life cover’ – instead of blaming what comes next on regulation, they respond with something along the lines of “…as a professional adviser, for me to give you the best advice there is an accepted process I must follow to make sure the advice is suitable for you, and that you are not prejudiced by improper process”.

Regardless of the outcome, it is important for financial advisers to demonstrate that the client fully understood the decisions they have made, (especially if they know and clearly tell you exactly the amount, provider, and product they want) without input from the adviser.

Some advisers will provide advice based on overall risk, while making inaccurate assumptions on affordability. Frequently at presentation stage these advisers discover a client can’t afford the cover.

Subsequently, changes must be made which isn’t always a pleasant client experience and can be a very inefficient way to provide advice. Scope often takes a turn after the fact, particularly when clients can’t afford the optimal or recommended advice.

Collecting detailed data around the client’s income and expenditure will inform you of any budget surplus/deficit up front, so you are able to discuss priorities and/or availability of supporting risk management.

Asking how much the client is willing to put towards protecting their lifestyle is a great way to manage cost expectations up front. If the budget is spread thin, let them know the impact it could have.

Successfully managing your clients’ expectations also includes measuring overall risk, versus risk being transferred, and clearly explaining that to the client.

And the last word, file notes are everything – write everything down!

Melanie Purdey
Melanie Purdey.

Melanie Purdey leads Compliance Refinery’s Director Support Programme.

Previously she was Head of Aligned Advice at AIA, is a former CEO of Newpark Group – representing more than 400 adviser businesses – and facilitated the advice and compliance programs for AFAs at Medical Assurance Society for nine years.

Purdey is a member of Arbitrators and Mediators Institute of NZ, is a Member of the Institute of Directors NZ, and has worked as an adviser.