The future of financial advice is almost here. But with just over six months to go until the “hard” start of the Future of Financial Advice (FoFA) reforms, help is at hand.
Professional Planner and the Financial Planning Association of Australia (FPA) have produced a series of videos on “Bulletproof financial planning” – a financial planner’s guide to complying with the new FoFA rules, and how adhering to the FPA’s code of professional practice can help negotiate a potential minefield.
In the first video, focusing on the best interests duty, ASIC Commissioner Peter Kell says placing your client’s interests first is a hallmark of professionalism.
Kell says financial planners need “to have some processes in place to make sure you’re understanding what they want, what they need, their circumstances, so you can actually meet their needs”.
The FP’s general manager of policy and standards, Dante De Gori, says there are three key things planners need to understand about the best interests duty.
“Best interests is not about cheapest product or best product. Best interests is about motivation, conduct and behaviour,” he says.
“Number two, best interest is about your processes and how you’ll actually prove it – so even though you may act in the client’s best interest, the question is how you actually provide it and demonstrate it to your client, to ASIC and to the FPA.
“And number three, it’s about individual obligation. The licensee is not the person providing the advice, it is you. You are now individually accountable for that advice.”
Claire Mackay, principal and head of advice for Quantum Financial, says putting clients’ interest first is better for both planners and clients.
“It’s actually really liberating to know that if my client’s best interest is served by them paying off their mortgage then I can give that advice and I’m not burdened by having to sell them some financial product or insurance or something else,” Mackay says.
“It also means my clients are confident that when I do provide them with advice in relation to a particular investment or product, they know that it actually is helping them achieve their financial goals.”
“More confidence to design services that meet scaled advice needs”
In the second video, on scaled advice, Kell says ASIC is confident that “people are going to be able to give that more target advice, in a cost-effective way, while still providing high-quality advice”.
De Gori says the scaled advice proposal does not reduce a planner’s obligations to give great advice, and to serve the client’s best interests. He says the FPA consultation paper on its code of practice introduces some new principles and standards designed to help planners deliver scaled advice while meeting those obligations.
“The way we’ve tried to address this is through introducing some new ‘client-type’ arrangements or standards, and new client-age arrangements,” he says.
“This will enable advisers to be able to better scope the questionnaire and the needs set of those clients.
“[It] enables advisers to not have to complete a full comprehensive fact-find, by being able to tailor the questionnaire and needs to the client based on the situation or need or problem of the client, and by the client’s age group and demographic.”
Patrick Canion, chief executive officer of ipac Western Australia, says the regulatory certainty and guidance the industry is receiving will give planners “more confidence to design services that meet scaled advice needs”.
Canion says providing scaled advice is not “the overwhelming change that I think many planners suspect it will be”.
“Rather, it’s going to put some framework around a lot of what we already do,” he says.
“ASIC emphasises a lot in their guidance that they’re expecting planners to use their professional judgement and expertise when dealing with these situations.
“The important thing therefore for [planning businesses] is to have systems and processes around that, that give their individual planners some framework for that advice and also provide some evidence that although the adviser has scaled their advice, they have nevertheless been comprehensive and thorough in the areas they have covered with the client.”
