by Tony Vidler
Advisers are increasingly seeking assurance that their practices are robust and will withstand 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 would be assessed. It is worth considering one of the thornier parts of the financial advice spectrum and quickly review a range of issues that would be expected to be considered in the provision of investment advice as an example. If the investment advice was considered at a later date by an independent and qualified observer they would look to the following points:
One could go with a substantial list 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 considering behavioural or process matters. The emphasis is entirely upon the relevance of the specific recommendations.
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.
As the financial advice industry moves ever closer to full professionalism – albeit painfully slowly at times – one of the biggest challenges is ensuring that all practitioners actually really understand what constitutes a reasonable “duty of care” when dealing with clients affairs. The issues around having a documented process, privacy concerns, the fiduciary duty and so on, are pretty well understood. These are essentially only behavioural, attitude or conduct areas though.
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.
You may also find this post useful: Beware of…well, just Beware When Giving Advice0