One of the most important things that any organisation can do is to create a culture that allows financial planners to get on with the task of giving suitable financial advice.
As Professional Planner has previously reported, real improvements in the quality of advice are driven from the bottom up, and there is often genius at the practice level of planning businesses.
I have had a lifetime working with some of the world’s best advisors and though I’m often accused of being a slow learner, eventually some things stick. One thing in particular regularly emerges.
Regulatory demands are often well short of professional best practice. In the Australian case, the law sets a very basic planning standard and is somewhat product oriented. Experience reveals that many advisers deliver great advice by adopting a collaborative, rather than a prescriptive, planning process.
Five proofs
FinaMetrica has developed with subscribers five suitability proofs which are aimed at ensuring that customers’ needs are at the heart of advisory businesses.
1. Prove you know the client’s circumstances, needs and aspirations
2. Prove you have explored alternative financial behaviours and strategies
3. Prove you know the products and services being recommended to a client
4. Prove you have explained to the client the risks in the plan and the products through which the plan will be implemented
5. Prove you have received the client’s informed consent to the risks in the plan.
1. Prove you know the client’s circumstances, needs and aspirations
Advisors need to have a thorough understanding of clients’ circumstances, goals, risk tolerance and risk capacity. The client’s goals include financial and lifestyle goals such as owning a home or savings for retirement.
Risk tolerance is an important factor that the adviser must assess and take into account. Where couples are involved, the adviser needs to know the risk tolerance of each person as the financial plan impacts them both. Effective risk profiling is a key contributor to confidence in advice, as I have previously argued.
2. Prove you have explored alternative financial behaviours and strategies
More often than not, clients can’t achieve their goals with the resources that they have available. Here, advisers must explore alternatives with clients and the possibility of achieving goals through different means. The trade-off decisions themselves must be made by the client according to his or her values rather than by the adviser, who is there to guide the process.
3. Prove you know the products and services being recommended to a client
Once you have decided on an investment strategy, you must be able to prove that you know the products and services being recommended to clients as part of that. The clients should have their investment expectations appropriately framed by the adviser.
As previously reported by Professional Planner in what financial planners can learn from client disputes, the adviser must be able to demonstrate that they have explained product details to clients in language they are likely to understand.
4. Prove you have explained to the client the risks in the plan and the products through which the plan will be implemented
The adviser must show they have explained to the client the risks in the financial plan as well as the risks associated with individual services, investments and products. Clients need a clear understanding of the expected performance of investments and, in particular, the downside risk on their portfolio.
5. Prove you received the client’s properly informed consent to accept those risks
Having illustrated the client’s balance sheet over time, and having outlined the risks involved in the plan, advisers need explicit instructions from clients to proceed. They need evidence that the client has given their informed consent to the plan and that the risks have been fully explained and the client has accepted those risks.
On your way
With the five proofs in place, you are on your way to creating a standout financial advisory business. These proofs are consistent with the giving of quality financial advice targeted at meeting the needs of clients. So let me encourage you to see beyond the regulatory minimum to achieve a more personal and client-focused standard.
