Defining the Scope of the Job

The First Step With The Client


Considering the draft professional standards now released by the FPA, it is clear that financial advisers will need to take greater care with the defined needs and objectives of their clients.


This requires a client to be committed to an open and transparent relationship with their adviser. If this is not the case, then the limits of the relationship between adviser and client need careful limitation as part of the adviser's engagement process.


Investigating Client Need1


Adviser and client need to get on the same page...


In this article we explore an example of where adviser and client may actually be starting from in their professional relationship.


What is needed for client and adviser to develop quickly a common view of the needs to be satisfied and results produced for this to be considered a successful engagement by the client.


The Adviser's Objectives


Have I established this is a client I want to work for?


What result must I achieve for my client to be happy with the result?


What information do I need in order to proceed with the work?


What decisions do I need from the client to perform my work?


What risk management and compliance objectives must I meet in order to proceed with this work?


The Client's Questions


What do I have?
Who can take my stuff from me, my representatives or estate?


How do I deal with?

  1. Personal and Family Representation and Succession
  2. Family Continuity, Governance and Legacy
  3. Wealth Preservation, Enhancement and Transfer
  4. Business Ownership and Control
  5. Financial Security and Compliance


What legal systems am I accountable to?


How do I deal with my retirement, death, disability or incapacity?


Why do I need estate structures?2


"9.13 As the population continues to age and government responsibility for social services becomes increasingly constrained, it is necessary that clients be challenged to consider the extent to which they need to ensure their families are self-sustaining economic entities through the lives of at least three generations of family members (as this will generally be the span of generation that the trust perpetuity period of 80 years will capture).


Attaining this objective requires that families harness not only the savings from workers within families but also the investment power of savings, windfalls and inheritances. The superannuation environment provides a starting point for families to implement structures and processes to achieve these objectives.


9.14 Depending on the scale of wealth to be managed, clients may also have to consider, as appropriate to their circumstances:

  1. How a person's business interests and cultural or creative output can serve the need of subsequent generations?
  2. How inheritances can be managed separately from business, superannuation and other investment interests?
  3. How the longevity of family members can challenge the role of superannuation in long-term family capital management if superannuation strategies remain focused on allocated pension and market linked pension income streams;?
  4. How trusts can provide a longer term capital management framework for families than superannuation?
  5. How the superannuation tax concessions are relevant to the circumstances of each worker?
  6. To what extent a person's estate is to be managed for social and community accountability?
  7. To what extent can third party risk limit a person's ability to respond to the full range of their personal, family, social and community accountabilities; and?
  8. The structures and processes to limit the impact of third party risk on the management of a person's estate."


Conclusions


Bridging the expectation gap for the immediate services to be delivered is the job of engagement management processes in an adviser's practice.


This becomes focussed on crystallising in the scope of work agreed to in an adviser's terms of engagement and the objectives of the client and the adviser must meet in the course of the engagement.


Single issue and limited advice can be delivered as long as the limited scope of the engagement is clearly agreed and the client accepts the risk of how the advice is to be used.


The risks of the use of advice must normally remain with the client, provided the advice delivered is otherwise in accordance with appropriate professional standards.


Advisers, for their own risk management and client satisfaction management purposes should normally establish with the client the benefit the client expects them deliver through their engagement to the client.


With the advent of RG200, advisers should take full advantage of advice and engagement limitation in order to proactively manage the commercial and professional indemnity risk of operation of their practice.

 

  1 See Perkins & Monahan Chapter 9 for more detailed treatment of this subject

 

  2 From Perkins and Monahan from Chapter 9