The Sydney Chapter of the FPA held a lunch time workshop on this subject on the 4th September. The opportunity to observe and synthesise the views of an industry super fund, a large dealer group and a corporate superannuation advisory practice was invaluable.

Reflecting on both the presentations and discussion at this event, the following points need further consideration by both advisers and dealer groups.

RG200 is just one element of a revised government policy for managing financial advisers.

The entire picture of regulatory changes for financial advisers is yet to emerge. It is impossible to fully understand the impact of RG 200 on financial advisers fully until all changes to the financial adviser regulatory framework are known.

Low value, self directed clients need to be understood as a distinct client segment in the market.

Corporate or industry fund members with $50,000 or less in their members account normally are self directed and only looking for the answers to simple questions. The intra fund advice regime seems focussed on these types of clients who normally lie outside the client catchment of most financial advisers.

RG 200 already recognizes a number of sources of complexity around a client's affairs that will take the client out of the intra fund advice regime. Financial advisers should be focussed on delivering great, cost effective service in these more complex areas of service.

The industry super fund representative confirmed that because of limited adviser numbers within their fund, they were only able to provide a reactive advice service to members.

Estplan comment - Estate Planning and the family and social complexities of a client's life provide factors outside of the operation fund that may affect a person's superannuation interests which impacting the fund fulfilling some of its core or secondary purposes. Issues of fund operations that impact these factors (like beneficiary nominations and benefit succession agreements) should be accepted from the intra fund advice regime and be subject to specialist advice.

Grading advisory responses must be allowed.

The Corporation Act 2001 already provides a framework for limiting advice and reassigning decision making responsibility to a client. It must however be used effectively.

Increased client responsibility to decide and integrate the advice received to the management of their affairs must be publicised broadly in the community as the responsibility that remains with clients using the intra fund advice regime.

As consumer choice remains a paramount policy choice by Government, the consequences of choice on the client must be clearly stated to clients at the start of an engagement.

Clients must remain in control of the extent of help they acquire from time to time and must clearly assume the risks at any point of time acquiring less help than they objectively need and consequently any negative effects that then occur.

Estplan comment - Responsibility for evaluation and implementation of advice must remains with the client unless otherwise agreed in writing. This should be clearly stated in the adviser's terms of engagement.

Client financial literacy needs to extend to client responsibilities when engaging professionals.

We live in a market economy where consumers are expected to exercise free choice and inform those choices from appropriately qualified information sources.

Clients need to be educated that unless they appoint a personal representative such as an attorney, they retain responsibility for decisions about the management of their affairs.

The process of evaluating advice and making effective decisions is not a skill that is normally taught to clients.

Responsibility for evaluating advice and making decisions about advice needs to be clearly stated and understood at the start of an advisory engagement.

The tendency of clients to abdicate decision making responsibility to advisers is a fact and needs to be managed as a risk to the advisers business.

The true nature of the responsibility of the adviser in the service relationship needs to be disclosed and recorded at the start of the engagement.

Estplan comment - Consumer protection law in this country requires that the provision of goods and services be true to type. Inappropriate characterisation of the adviser / client relationship is a continuing source of complaint. A revised approach to client engagement management by advisers is needed. The FPA in its newly released practice standards papers provides valuable guidance on how these changes should be approached. Terms of engagement need to be used in conjunction with the existing Financial Services Guide (FSG) regime.

Financial advisers already are subject to substantial common law duties to their clients.

The characterisation of adviser conduct in the media as "the acts of the 99% which give the top 1% a bad name" is offensive and invalid.

Professional duty and thus the legal consequences of that duty are already embraced by many advisers.
The common law accountability of adviser to client is imposed in any event.

Estplan comment - It is product salesmen dressed as independent advisers who create the problem issues for the community. Let us focus on fixing this mischaracterisation. Many advisers do not have sufficient education to be able to function at a full professional level. Product intermediaries need to be characterised separately from client remunerated independent professional advisers.

Fund distribution channels need to be understood separately from independent financial advisers.

Fund managers have spent a lot of money constructing their financial product distribution channels and can be expected to defend the competency and good intent of their "advisers".

Product advocacy, product evaluation and candidate product selection and client centred and remunerated independent financial advice needs to be understood as separate job functions in the financial services sector in need of separate role characterisation and possibly separate occupational role descriptions.

RG 200 is here - all advice must be limited

It is time to accept that complete advice can only ever be given in the face of complete knowledge of the client and this will never be achieved.

The principles underlying RG 200 in relation to the delivery of limited advice need to be applied more broadly to financial adviser operations.

Estplan comment - The assumptions underlying advice, any exclusion from responsibility or service scope, a summary of the next actions expected of the client and the advisers understanding of which of the client's goals, needs and requirements is satisfied by the advice delivered should be standard features of written advice. Advisers can dramatically limit the professional risks of their advice my making sure that all assumptions underlying the advice and the advisers understanding of what benefit the client is receiving from the advice are included as appropriate in written client advice.