by Tony Vidler
Knowing that your financial advice is suitable for a client is something that every professional adviser is willing to attest to, but proving it when challenged can be incredibly dificult.
Advisers are increasingly being challenged and therefore seeking assurance that their practices are robust and will withstand such scrutiny. Whether that scrutiny is a client complaint or a regulatory audit, or even a second opinion being provided by a peer to the same client, the question lurking at the back of the mind is
“How does my advice look?”
As practice and oversight standards continue to evolve there is doubt or confusion around how the suitability of specific advice to a client could be assessed by a critic at a much later date who is operating with the benefit of hindsight (and often more data and facts than the adviser might have originally had at the time of providing the financial advice).
So let’s look at an area of the financial advice spectrum which gets more challenges than most: investment advice.
If the investment advice was reviewed at a later date by an independent and qualified observer they would look to the following points:
The list could go on and become ridiculously exhaustive of course, but the key point is that when it comes to assessing “suitability” of any particular piece of professional advice we are no longer giving great weight to to behavioural or process matters. The emphasis shifts almost entirely to establishing relevance of the specific recommendations to a specific set of circumstances.
The criteria by which the relevance is assessed is whether prudent and responsible analysis has been performed to ensure recommendations are most likely to achieve the clients objectives.
This is where it becomes imperative that practitioners actually really understand what constitutes a reasonable “duty of care” when dealing with clients affairs. Regardless of the nuances of between “fiduciary duty” or “best interests” of a client or “clients interests first” (& whichever version might apply to any individual adviser) the test for suitability will be fundamentally the same.
The real testing area for any specific piece of advice for any given client will swing on “suitability”, and in order to ensure the suitability standard is met there does need to be some robust thinking, analysis and scenario planning underpinning the advice – and the compliance or documentation obligations really are just about ensuring that this is evidenced.