The letter of initial engagement (LOIE) is the written contract that provides for this agreement and, for many financial planning businesses, this document and the conversation around it will be the difference between successfully onboarding a new client or not.
ASIC provides little guidance as to what should be in an LOIE. RG168 discusses ‘good disclosure principles’ but these are aimed more at the financial services guide (FSG), product disclosure statement (PDS) and statement of advice (SOA).
The Financial Planning Association (FPA) provides detailed information around a client engagement letter for ongoing advice but not for the initial advice document.
The danger for many advisers is that all the hard work given away for free in the first meeting may be wasted if the LOIE is badly designed, little more than a templated legal document, inserted with the client’s name and a fee.
Here are five considerations for your LOIE:
- The document should be a seamless continuation of the new client onboarding process and the conversations that have taken place. In this way the client is engaged in a journey that is rational and informative and is taken to a logical conclusion – i.e. signing onto your service.
- The LOIE should be a highly personalised document capturing the essence of the client’s goals and the agreed scope of advice within the text of the letter. In this way you can re-enforce the value proposal that is the client’s reason for proceeding.
- Clients have no way of knowing the amount of time and effort that is undertaken by you and your team and this is an opportunity to outline the depth and breadth of the services that you are providing. These may include:
- an in-depth understanding of their current financial position, concerns and goals;
- determining gaps in achieving goals;
- developing strategies to fill those gaps;
- recommending financial products; and
- implementing advice and providing an ongoing service.
An adviser who takes the time to structure their client engagement process and provide a personalised LOIE should see the benefits across their business. More prospects are likely to become clients, as they will have a better understanding of the services they are agreeing to and therefore be willing to pay a commensurate fee. The practice should also have fewer compliance issues as the agreement between client and adviser is linked to the important conversations along the client journey.
This process can be simplified by using technology that transfers the relevant information through a series of tools providing a logical progression for the client and a simple sequence of events for the adviser. The letter of initial engagement can then be created through a wizard in a matter of minutes.
This is part four of a six-part series on the client/adviser journey
Hans Egger, managing director, AstuteWheel
And what about the application of the new Ethical Standards from 1/1/2020 – Standard 2 regarding clients consent? You may only act with the client’s free, PRIOR and informed consent. If required in the case of an existing client, consent should be obtained as soonas practicable after this code commences. This is going to have a huge impact as well.
thank you for your wisdom in this article well shared
[quote=Mark ]Very, very , disappointed at this article . Why is LOIE a 4 letter acronym , not a 3 letter one , like the FPA , CFP , IFA , DFP , CPA ,FDS , SOA …… Doesn’t Hans know anything !!!!! [/quote][quote=Mark ]Very, very , disappointed at this article . Why is LOIE a 4 letter acronym , not a 3 letter one , like the FPA , CFP , IFA , DFP , CPA ,FDS , SOA …… Doesn’t Hans know anything !!!!! [/quote]
I’m guessing he didnt want to drop the “O”…..
[quote=Anonymous]Interesting piece by Hans, he is absolutely right, not only ASIC but the key Associations set up to assist advisers have little or no guidance for advisers in this space. Having recently thought much about this very point we had to develop our own as there is very little in the way of precedent documents in this space. With all the pressure being brought to bear on the Advisers out there it is extremely disappointing the our professional associations have not and are not giving this any real degree of guidance, until the the CAANZ and the CPA’s who have had these tools available for many years. Again a case of the Associations not thinking about the Fee for Service provider rather appearing to still concentrate on the institutionally aligned commission realm of the past.[/quote][quote=Anonymous]Interesting piece by Hans, he is absolutely right, not only ASIC but the key Associations set up to assist advisers have little or no guidance for advisers in this space. Having recently thought much about this very point we had to develop our own as there is very little in the way of precedent documents in this space. With all the pressure being brought to bear on the Advisers out there it is extremely disappointing the our professional associations have not and are not giving this any real degree of guidance, until the the CAANZ and the CPA’s who have had these tools available for many years. Again a case of the Associations not thinking about the Fee for Service provider rather appearing to still concentrate on the institutionally aligned commission realm of the past.[/quote] I have a theory on insurance commissions( which I want to retain, thank you) I think the fear by insurers as New Business keeps dropping is that insurers believe a NIL commission environment, where a new breed of advisers who learn to sell a fee for risk advice to the client, may adopt a “not my problem” attitude to the preservation and administration of the policies once in place. [b]That service will cost insurers squillions – currently its free, courtesy of us mug advisers.[/b][b][/b]
Very, very , disappointed at this article . Why is LOIE a 4 letter acronym , not a 3 letter one , like the FPA , CFP , IFA , DFP , CPA ,FDS , SOA …… Doesn’t Hans know anything !!!!!
I’m an adviser using the Astute Wheel client engagement system that Hans is referring to (for 5+ years). This process has made a significant impact on my client engagement process, and I highly recommend checking it out. I’m better able to articulate my value to my clients (and honestly, to myself also) and am positioning more appropriate fees for the work I do. I had tried putting together engagement documents myself, but the ability to pull through the goals and scope into the same document is a much stronger proposition, from both a sales and a compliance perspective. Check it out…
Interesting piece by Hans, he is absolutely right, not only ASIC but the key Associations set up to assist advisers have little or no guidance for advisers in this space. Having recently thought much about this very point we had to develop our own as there is very little in the way of precedent documents in this space. With all the pressure being brought to bear on the Advisers out there it is extremely disappointing the our professional associations have not and are not giving this any real degree of guidance, until the the CAANZ and the CPA’s who have had these tools available for many years. Again a case of the Associations not thinking about the Fee for Service provider rather appearing to still concentrate on the institutionally aligned commission realm of the past.