1. Take detailed ﬁle notes
AFCA relies on evidence provided by the parties to a dispute. Documents created at the same time as the activity or advice in question are usually given more weight than later recollections of what was said or done.
This means contemporaneous ﬁle notes of conversations and actions are solid gold when a dispute comes to us.
Whenever possible, conﬁrm verbal instructions from a client in writing (e.g. send them an email after a telephone conversation conﬁrming what was said). Statement of Advice and ﬁle notes should detail how any conﬂicts between goals, available resources and willingness to take risk are resolved.
2. Clear goals and strategy – you must have a conversation with the client about their goals
We do not consider client objectives and instructions written in industry terms that few clients would understand to be a reliable record.
Write down a client’s objectives in the words the client has used in answering your questions about their objectives and how to quantify those objectives. This demonstrates that you have heard and understood the client’s goals in seeking advice – e.g. ‘to retire at age 65 with an income of $50,000 per year’.
Detail how the strategy you are recommending will achieve the client’s goals.
3. Turn clients away or refer when appropriate
If your services are not suited to a particular client (e.g. they are seeking advice about direct shares and you don’t provide that service), you must tell them so.
Don’t try to shape the client to your offering. If a client is seeking a return that does not match their risk proﬁle and you can’t convince them to change their expectations, either send them away or see tip four.
4. Explain the risks to clients who choose to act against your advice
You must be very clear in explaining the risks and documenting that the course of action is against your advice. Explain the risks in language the client understands, make a contemporaneous ﬁle note, and have the client sign it.
5. Explain what types of service you are providing
Clients don’t know the difference between information, general advice, personal advice, limited advice, and execution-only services.
If you don’t give the appropriate explanations and warnings or you are unclear, then you could be found liable for advice or services that you had not intended to provide.
6. Use template forms and documents carefully
Make sure template forms and documents about strategies, products, and risks are appropriate to the client you are advising.
It is very difﬁcult to convince us that you have selected the right strategies and ﬁnancial products for a client if the documents contain errors, are missing information, or contain copious amounts of irrelevant material.
You will also have some trouble convincing us that the client understood your documents if they contain pro-forma jargon or complex concepts.
Tailor documents to your client’s ﬁnancial literacy. Statements of Advice must be clear, concise, and effective.
7. Use risk proﬁling tools carefully
Remember, risk proﬁling tools are only tools. They all have inherent ﬂaws that must be recognised and addressed by the adviser.
Make sure that the strategy and asset allocation you recommend to a client is consistent with the risk proﬁle generated by the risk proﬁling tool you use. If there are inconsistencies, or if a client seeks a return that does not match their risk proﬁle, you must clearly explain the risk and impact.
8. Don’t give cookie-cutter advice
The best interests duty requires that advice be reasonably likely to achieve the client’s goals and that alternatives have been considered.
You should not put all or most of your clients into the same strategy and products, especially not gearing strategies. For example, we saw a Statement of Advice for a client with taxable income of $42,000 that stated: ‘Your reasonable level of surplus income and high tax rate should make gearing an appropriate option for you’.
9. Understand and explain the products
Understand any products you are recommending. Don’t advise on products you don’t understand.
Don’t just hand over a Product Disclosure Statement (PDS) – you must explain the PDS to your client and record your discussion in the Statement of Advice (SOA).
Don’t cut and paste PDS disclosures into your SOAs. Show you understand the products by using the same words you use to verbally explain the products to your clients.
10. Be clear about the advice relationship with clients you know
If you are giving advice to a friend, relative, colleague, or employee, it is critical to formalise and document the process as you would for any other client.