Clients need to be kept informed about the financial advice process and to take responsibility for what they are committing to according to a senior financial adviser and award winner.
Dartnall Advisers, Principal, Eleanor Dartnall said adopting an advice process in which clients must have a level of informed consent has been critical in avoiding advice and investment mismatches as well as boosting referrals from existing clients to nearly 100%.
Dartnall, who is the Association of Financial Advisers – 2014 Adviser of the Year, said she had focused on client education since the introduction of the Future of Financial Advice (FoFA) legislation as she believed it had serious omissions in the safe harbour provisions.
“What is totally missing is a requirement for clients to indicate they have understood the advice and have given consent to it. We aim to provide informed consent so a client can accept responsibility for the advice they receive,” Dartnall said as part of her address to a Most Trusted Adviser webinar hosted by the Beddoes Institute last week.
“What is totally missing is a requirement for clients to indicate they have understood the advice and have given consent to it.”
As part of this shift Dartnall replaced the risk profiling section of her meetings with education around how different asset classes work in fluid markets, types of investment exposure and diversification and specific issues that may arise in sector and companies within the market.
“This takes around one and half hours but it was better than asking people to make choices based on questions they did not understand. Instead of tagging clients as conservative or balanced and matching them to investments they were able to choose what risks they would take with their money,” Dartnall said.
Aware that Statements of Advice (SoA) were already too large Dartnall also removed all the generic content from SoAs given to clients and focused on advice given to the client only after they had given informed consent.
This has meant that Dartnall has chosen not to deliver advice online stating it was necessary to have face to face engagement with clients to secure this higher level of understanding.
“It can take up to four meetings instead of the two we were doing in the past and the cost remains the same for the client but we have found this engagement works. At present new clients refer us to others at a rate of 90%, while just over a year ago that referral rate was only around 2%,” Dartnall said.
Eleanor’s comments are quite sound. However, she’s seemingly a financial planner and clients seek her advice on those matters. This isn’t necessarily so with life-risk only and to educate clients about insurance is not top of mind with many clients. They do rely on an established relationship with an adviser though and trust that adviser to give them the good oil.
I agree with the approach suggested. Self-evidently, informed consent is the gold
standard because it suggests clients are making decisions only after having
been placed in a fully informed position.
Unfortunately, “informed consent” is sometimes limited to the client signing a Authority to Proceed or Client Declaration indicating that they have read and understood the advice but in circumstances where they haven’t really understood much at all.
Compliance teams (correctly) reinforce the importance of adherence to process because following a process increases the likelihood that the advice will end up appropriate. However adherence to process,including the procuring of a client signature, and appropriateness, are not synonymous concepts. The former may well lead to the latter but it is not a foregone conclusion.
Thus it is widely believed that a signed Authority to Proceed somehow confers a cloak of respectability on an advice document; that if the client has signed off on the advice, this somehow implies that the advice was appropriate. The problem with this process of reasoning is that the client doesn’t know what the client doesn’t know, which is precisely why they sought advice in the first place. So if the underlying advice was poor, all that the signed ATP or Client Declaration proves is that the client read
and understood poor quality advice, without understanding how poor it was!
This is not to say that a signed ATP has no value. On the contrary, it is very useful for proving that the client was provided with an FSG, SoA, PDS etc, but it does not prove that advice was appropriate if in fact it wasn’t.
The requirements for personal advice are laid out fairly clearly
in legislation and regulatory guides. This is the standard that advice is
required to meet. If it doesn’t, don’t expect a signature on page 83 of
your “clear concise and effective” advice document to count for much
in FOS or a court.
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