Following the release of ASIC’s consultation paper seeking industry feedback on the barriers to giving limited advice, one compliance firm has argued that it can be delivered under current regulatory guidance as long as advisers are clear about how the client is better off.
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.”
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