Financial advisers can easily avoid disputes with clients by documenting every client engagement and piece of advice according to the head of a boutique planning practice.
At the same time advisers should not stress about meeting a fictitious ‘best’ advice scenario but rather ensure any financial advice leads to a better outcome according to Parallel Financial, Director, Peter Richards.
Speaking to delegates at the 2015 FPA Congress, Richards said 19 out of 20 disputes taken to the Financial Ombudsman Service (FOS) are settled early but typical legal fees can run as high as $25,000 a day and advisers can avoid disputes through proper documentation.
Richards, who also acts as an independent expert witness in financial planning cases, said information must always be retained in a client file for each and every piece of advice.
“It is not enough anymore for it to be in the head of the financial adviser. Even reviews need to be documented and to do nothing is considered as ‘hold’ advice and there needs to be a reasonable basis for that too,” Richards said.
“There is no test for best advice. All that it means is that at the time of the advice, is it likely to put the client in a better position?”
“If it is not in writing then it has not happened,” Richards warned, stating that client file notes have to be relevant to the advice but they do not need to go beyond the advice.
“Ensure advice is fit for purpose. The big test is making sure in your SoA why the advice you give is set and how it will achieve the client objectives. Everything will be tested the same – new advice, review advice, or advice to buy, hold or sell.”
He cautioned advisers about becoming overly concerned around meeting Best Interest Duty requirements stating the concept of ‘best interest advice’ does not exist.
“There is no test for best advice. All that it means is that at the time of the advice, is it likely to put the client in a better position?” Richards said.
“When advice is tested for its appropriateness it is tested on the knowledge you have at the time of the advice. So when dealing with client in December 2007 you were not expected to know the market will crash the following year.”
“Also when you are tested on legislation it was what was in place in December 2007, not today’s legislation.”
