Most financial planners provide a substantial amount of free time and expertise in the early stages of the advice process for prospective clients, but at some point the conversation will need to turn to the inevitable question of what advice will be provided and how much it will cost.
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:
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
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