Originally published |2 October 2015

Growing up in Australia, the beach culture is a big part of life.  Whether it is during the holidays or on the weekends, a big proportion of Aussies love to go to the beach.  And because of our love affair with the beach, we have lifesavers (also called lifeguards) who patrol the beaches, predominantly from Spring through to Autumn, to ensure that beachgoers are safe.

And what is the message that is drilled into us from when we are kids going to the beach?

“Swim between the flags”

Why is that? Why have we always been told that when we go to the beach we have to congregate between to flags rather then the entire beach?  The answer is really simple, there are limited lifesavers on the beach and they try to ensure swimmers are staying in the safest part of the surf, and where they can get to quickly to help.

Having a good compliance person is like having your own personal financial planning lifesaver.  A good compliance person will look at the business and provide a set of guidelines which you can then provide advice within.  Why do they need to do that?  Don’t we just follow the Corporations Act?  Well, it is like having the entire beach in which you can swim.  There are rips and currents that you may not see and you may find yourself in a bit of trouble.  By having the compliance lifesaver, they will provide you with “flags” in which to ensure you are in the safest part of the surf and where they can get to you quickly.

If we look to prior to 1 July 2013, when the Future of Financial Advice (FoFA) reforms were enacted, the financial planning industry was starting to swim outside the flags.  The media reports about advice failures has been extensive.  This is why we needed the FoFA reforms.  It was to provide a new set of flags to protect not only the clients, but ourselves, from getting caught in a rip.

When the FoFA reforms were enacted, a main component of the best interest duty was the “Safe Harbour”.  How much better could the set of flags have been set out for financial advisers.

So as an adviser, how do you use the safe harbour to swim between the flags?

  1. Use a fact find, or data collection tool to identify the objectives, financial situation and needs of the client that were identified through instructions.  File note discussions held.
  2. Use a fact find or data collection tool, as well as file notes to identify the subject matter of the advice sought by the client (whether explicitly or implicitly).
  3. Use file notes to identify the objective, financial situation and needs of the client that would reasonably be considered relevant to the advice sought on that subject matter.
  4. Use a fact find, or data collection tool, as well as file notes, if it is reasonably apparent that information relating to the client’s relevant circumstances is incomplete or inaccurate, make reasonable enquiries to obtain complete and accurate information.  If information is incomplete or inaccurate, your Statement of Advice will include the relevant warning.
  5. Through your experience, training and licensee authorisations, assess whether you have the expertise to provide the advice sought and, if not, decline to give the advice, or refer the client to someone who can give the advice.
  6. If it would be reasonable to consider recommending a financial product, conduct a reasonable investigation, which is research, into the financial products that might achieve the objectives and meet the needs of the client that would reasonably be considered relevant to advice on the subject matter and assess the information gathered in the investigation.  Ensuring that you file note the research.
  7. Base all judgments on the client’s relevant circumstances, through the Statement of Advice and file notes; and
  8. By ensuring your client is in a better position, you will have taken any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client’s relevant circumstances.

So, by ensuring you have a comprehensive data collection tool, comprehensive file notes and the advice puts the client in a better position, you can ensure you are swimming between the flags.

“Surfs Up”