5 Steps to Playing It Safe
Best Practice Advice & Compliance & Sales & Marketing for Professional Services

5 Steps to Playing It Safe

September 6, 2012

By Tony Vidler


How does an adviser play it safe when it comes to proving that they have acted in the best interests of the client?

There are 5 key things that the adviser must do – and be able to evidence afterwards – to show that they have worked for the benefit of the client, and not acted out of self-interest.

It comes down to being able to show that you “know your client”.

Knowing your client (as a principle of regulatory testing) is about understanding the clients situation and needs in order to provide suitable advice that is most likely to help them achieve their objectives.

The 5 things an adviser must do in order to play it safe, and be able to show they have been working in the clients interests, consist of 3 process steps and 2 ethical considerations.  They are:

1.  Identify the objectives and needs of the client, together with showing they know the clients financial situation

2.  There must be clear instructions regarding what advice is being sought, or offered.

3.  The relevant client circumstances need to be understood and documented.

Gathering the right information and having clear understanding with the client, as outlined in these three steps, will go a long way towards satisfying future critics.  However, to ensure that you are REALLY working in the client’s best interest, two further tests can be applied.

4.  Did the adviser to attempt to find out more information regarding the client’s circumstances if it could be considered “reasonably apparent” that the information provided by the client was inaccurate or incomplete?

5.  Does  the adviser have the competency and expertise to provide the advice required?  This is effectively a self-assessment on the advisers’ part – but hey, we know whether we know enough to do the job properly really don’t we?   

In reality, the ethical tests are never applied – unless the regulator comes knocking for an audit, or a customer expresses dissatisfaction.  Both of those circumstances can happen at any time, so you do have to apply these tests.  If you find yourself as an adviser thinking “I don’t think I have the knowledge to do that really well”….then you really should decline to try and provide the advice.  Otherwise you are inviting future dissatisfaction and problems.

One of the key things that is often misunderstood by financial advisers is that you will rarely be playing in terribly unsafe territory because of product non-performance (e.g. problem insurance claims, investment market losses) – IF your process is sound.  The adviser will be judged primarily on the basis of the processes they can prove to have used, and the extent to which they have demonstrated the principle of “the clients interest first”.

To play it safe as an adviser therefore there are 2 big things to do:

* have a process showing you understand your client, their circumstances, and objectives

* conduct yourself honestly – especially in assessing your own competency

further reading:

Best Practice: ASIC doesn’t expect perfection

Like this?  Then share it with others…or visit www.strictlybiz.co.nz for loads more useful and interesting information

© 2012 Tony Vidler.  All rights reserved. All materials contained on this web site not otherwise subject to copyright of other parties are subject to the ownership rights of Tony Vidler.  Tony Vidler authorises you to make a single copy of the content herein for your own personal, non-commercial, use while visiting the site. You agree that any copy made must include the Tony Vidler copyright notice in full. No other permission is granted to you to print, copy, reproduce, distribute, transmit, upload, download, store, display in public, alter, or modify the content contained on this web site.

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