In a recent article, Fourth Line business development consultant Joel Ronchi said that according to ASIC’s Regulatory Guide 244, it was possible for advisers to scope part of the client’s financial circumstance out of an advice discussion, either at the client’s suggestion or their own.
“When the adviser is deciding on the scope of advice to provide to their client, they need to ensure that they do not reduce the scope of advice to exclude critical issues that are relevant to the subject matter of the advice,” Mr Ronchi said.
“Where advice is scaled, the scaling must itself be in the client’s best interests, especially since the client’s instructions may at times be unclear or not appropriate for his or her circumstances.”
Mr Ronchi said that contrary to some interpretations, advisers did not need to scope in irrelevant parts of the client’s financial picture, despite the FASEA’s Standard 6 referring to “the broad effects arising from the client acting on your advice”.
“The financial adviser is under no obligation to enquire into the client’s circumstances that would not be reasonably considered relevant to the subject matter of the advice,” he said.
“Standard 6 does not seek to add a more onerous level of investigation by the adviser. FASEA have confirmed in its recently released code of ethics guide that the ‘requirement to actively consider client interests and circumstances applies regardless of whether the advice is intrafund, scoped, limited, single issue and/or comprehensive advice. However, the depth and detail of the enquiry and determination should reflect the scope of the advice sought.’”
Mr Ronchi said the key to compliant scaled advice was a focus on demonstrating the client would be better off under the advice, regardless of scoping.
“The best interest duty and related obligations as set out under section 961 of the Corporations Act apply to all personal advice, regardless of the scope of the advice,” he said.
“When assessing whether a financial adviser has complied with the best interests duty, ASIC will consider whether a reasonable financial adviser would believe that the client is likely to be in a better position if the client follows the advice provided.”
Mr Ronchi said a recent Fourth Line review of over 4,000 SOAs produced in the last year had revealed that many failed to adequately demonstrate “why the client will likely be better off financially”, and that advisers and licensees were struggling to illustrate the rationale for scoping certain issues out of advice.
“Advisers can find it challenging to clearly or accurately articulate how the scope of advice aligns with the client’s relevant circumstances – that is, the client’s objectives, financial situation and needs that would reasonably be considered as relevant to the advice sought,” he said.
“Licensees and advisers alike need to ensure they interrogate the SOAs they present to clients thoroughly prior to presentation, to ensure the advice provided and content of the SOA meet all legislative and regulatory requirements.”
Yes it is scalable, but only for Industry Super, delivered by Industry Super to sell more Industry Super? Well done ASIC.
Is ASIC Corrupt?
Were is the ASIC Gift Register?
What conflicts do the ASIC Commissioner have? Why is this not disclosed?
ASIC’s very owned SOA example failed in so many ways on this issue. if the regulators actually had to provide advice not comment on it restrospective they might learn the challenges this industry faces.
AFCA could not care less as well, they look for any way to provide a complainant a big pay day. The left has taken over and the beneficiaries are lawyers , public servants and those who want something for free.
Scaled advice, affordable advice and BID are not compatible with each other. My local GP sees patients for 5 minutes (scaled medical advice), how does he discharge his BID duties in 5 minutes?
If Joel Ronchi was the head of ASIC enforcement then everything he says would be fine. But unfortunately ASIC’s enforcement approach is based on indiscriminate persecution of all advisers, regardless of whether consumers are better off as a result of the advice or not. It is based on exploiting the slightest ambiguities in the law and the FASEA Code, to hang advisers. It is based on the assumption of guilty until proven innocent. It requires advisers to present voluminous, arbitrary, documents going back up to 10 years to prove their innocence.
The biggest barrier to scaled advice is not the regulations, it’s the regulator.
Yes, Mr Ronchi. That is all fine and dandy until courts and tribunals decide on the interpretation of FASEA standards.
Literally stop this nonesense. Get out of advice and move on, what a joke every word of this was!
The fact that answer isn’t a resounding “yes it is possible” from all areas of the industry indicates there is too much grey and that Advisers will be nervous to play in that space. How about put it in black and white. Advisers can give scaled advice in area x and Y and will be judge on that advice in isolation when reviewed by regulators. All stakeholder want is clarity not the interpretation of multiple lawyer with differing opinions
If most Advice out of 4,000 fails to show how scoping is done correctly, does it not prove the rules and REGs are totally convoluted and next to impossible to comply with.
BS Bureaucratic REGS with no real world application, thanks ASIC.
Very interesting and makes a lot of sense.
The very act of justifying the scope of the advice and “clearly or accurately articulating” how the scope of advice aligns with the client’s relevant circumstances takes time, effort and plenty of compliance training. This is commercially a problem. Compliance consultants do not have commerciality as part of their brief. So what they say can in theory be done is regularly not a viable option in a business. Limited advice fits in this space.
The only way to make scalable advice affordable and the only way any advice will be affordable to most is if advisers are all educated and competent and are then trusted to do the right thing without justifying everything in enormous detail. Fixed costs like TPB registration, FSGs and AML requirements are there whether clients want a full service or simply a single question answered. The whole system needs fundamental rewrite with competent advisers being trusted to give good advice without endless justifications and comparative scenarios in writing at the heart of it as per other professions. Advice regulation needs to be separated from product placement too.
Unfortunately there still needs to be a lot of adviser turnover to get to the point where this can happen. Until then the cost of compliance will continue to make most forms of advice unviable and limit those left to wealthy clients wanting a comprehensive service.
Multiple issues unresolved in RG244 that need to be addressed before advisers can feel 100% comfortable https://www.linkedin.com/posts/brett-walker-9814b728_on-scaled-advice-and-the-eternal-search-for-activity-6735135875962941441-82sA
I wonder if Joel will ever find himself in the dock ? I say no.
No – I’m sorry it CANNOT. Refer Standard 6. This industry is going to send me insane.