It is starting to become apparent to some advisers that the revenue they receive from some clients, combined with the risk and demands of keeping these clients, is simply not in the best interests of both parties. ASIC has made it clear that it will not tolerate advisers who collect revenue from clients and provide no ongoing service.
Phrases such as ‘fee disclosure statement’ are becoming part of the adviser’s vernacular. Many advisers are starting to think about how they are going to manage and service their disengaged and difficult clients particularly, if adding more resources is out of the question.
Now is the time to reassess the relationship with clients who fall into this category. If any of these clients have suffered a loss, there is also a risk they could lodge a claim for compensation on the basis they were not receiving adequate service.
Consideration also needs to be given to the difficult client or the client that no longer fits your business model. If there is no way you can turn the relationship around, then you should start thinking about how you are going to say: “It’s not you, it’s me”.
How to end the relationship
Just because something ends does not mean it has to end badly. Once the adviser has identified the instances where there is no mutual benefit, a process or policy needs to be established on how the relationship will be ended. The policy or process needs to set out what the adviser is going to do and by when. It is important that the needs of all parties are addressed when ending a relationship.
An adviser who cannot demonstrate the process or policy they employed to end a relationship may look like they are simply washing their hands of a client they no longer wish to service. The adviser may be accused of breaching their duty of care to the client for failing to ensure the client was equipped to deal with their affairs once the relationship ended.
External dispute resolution bodies such as FOS have previously found against advisers who failed to make proper provisions for a client when the relationship ended and the client went on to suffer a loss.
A policy or process should have regard to factors such as:
– How your disengagement letter will be worded and what will need to be included;
– How the information will be communicated to the client; for example, an elderly client with health problems may have different needs to a younger person in good health. A letter may need to be followed up with a phone call to ensure the client understands what is going on;
– Who the client can contact once the relationship ends if they need any advice and how will these contact details be provided to the client;
– What else the adviser has done to assist the client to move on, (for example have you notified the relevant product provider that you are no longer servicing the client);
– Evidence of the steps the adviser has taken to make the client aware that they will no longer be their adviser; and
– Whether the process to end the relationship has been reasonable and fair in all the circumstances.
Harsh or unfair
If an adviser has employed a process where they have ended the relationship that was found to be harsh or unfair, they may struggle to argue they acted in the best interests of the client. The adviser must be able to demonstrate the steps or process they employed when they ended a relationship having regard to their duty of care to their client.
For example, an adviser who ended a relationship with a high touch client, but failed to ensure the client was referred to another adviser or was capable of managing their affairs may be found to be in breach of their duty of care to the client. In this instance, the adviser would need to demonstrate the reasonable steps they took to satisfy themselves that the client was equipped to progress without them.
It is likely that any policy document on ending a relationship will have to be updated as new situations or scenarios arise. By updating one’s process or policy documents an adviser will be able to demonstrate that they are taking steps to actively manage this process, having regard to the duty of care they owe to these clients.
Many advisers have arrived at the fork in the road and need to decide which path they will take and whether these clients will be included on their journey. Now is the time to decide whether you continue to carry this load or find a better way to carry it.
