Clients that aren’t forthcoming about all required information leave advisers in an ethical tight spot due to Standard 6 of the Code of Ethics according to TAL.
Standard 6 of the FASEA code states “you must take into account the broad effects arising from the client acting on your advice and actively consider the client’s broader, long-term interests and likely circumstances”.
Speaking on an AFA webinar, TAL national technical manager Scott Hoger said financial advisers are not relieved of their ethical duty to look more widely at a client’s needs even if they aren’t providing enough information when asked.
“We haven’t seen what this looks like from an enforcement period just yet,” Hoger said, noting there isn’t an established precedent for an adviser breaching the standard in this context.
Hoger said the adviser has the responsibility because they hold in the power in the relationship with the client.
“If the client gives you the wrong information or not enough information for the advice area you’re looking to give advice in, it’s not on them.”
“In the absence of a crystal ball this is going to be a very costly exercise,” AFA’s chief executive Phil Anderson said in 2019. “You’re going to need to dig deep – deeper than you might have otherwise done – particularly if its only scaled advice that you’re providing.”
Hoger said determining what these client goals and objectives might be requires complete and accurate information.
“At the beginning you are trying to work out exactly what the client might need from a financial adviser and to determine the scope of advice you must have an understanding of what the client’s goals and objectives might be.”
They might explicitly mention what some of those goals are, Hoger said, but the adviser still has the responsibility to uncover the needs the client is unaware they have.
“Most clients don’t really know what they need or want especially when it comes to insurance. Your job is to identify not what the client explicitly seeks out but also help them work out what those other areas might be. You don’t have to give advice in those areas, but uncovering those needs are important.”
Safe harbour differs from code
Although the safe harbour steps have a similar requirement, Hoger said, the steps do have an out which the Code of Ethics lack.
“There is a corresponding requirement in corporations law through safe harbour to make sure you’re working with complete and accurate information, but of course, they do give you an out by saying if you make reasonable attempts to obtain the information and the client is not forthcoming you can provide advice.”
However, Hoger said the adviser must provide a warning to say to say the advice is based incomplete or inaccurate information.
“You don’t have that warning in the code because the code says you need to make an ethical decision as to whether the information you have is enough for you to proceed.”