Originally published | 17th July 2019
It is interesting how the more you work with pieces of legislation, and start looking at them from different angles, the more you become to understand more clearly the intent.
When you read through a client file, and conduct an audit of compliance with the legislation, you are looking for gaps and areas where the advice provider can improve. Along with this, you are looking for training opportunities.
One of the other areas that is done by well-trained compliance professionals is to look at the question “had the adviser done more, would it change my opinion”. I’ll get to this in a minute.
Back to s961B. As an industry, we have come to utilise s961B(2) as a tick box that advisers use to justify, they have acted in the client’s best interests. We have seen numerous “Safe Harbour” checklists produced over the past 6 years.
The one area that is missing from all of these checklists, is the key component of the legislation. Proof.
s961B doesn’t say that the adviser needs to check all of the steps listed in s961B(2) to meet the Best Interest Obligation, it says that the provider (that is the adviser) satisfies the duty (being acting in the best interest of the client), if the provider proves that they have done each of the Safe Harbour steps.
It is an important differentiation, because this is what the Regulator is using to test adherence with the obligation. What evidence is on file to prove the adviser has met s961B(1)?
Let’s go to the next level, s961G outlines that the resulting advice must be appropriate to the client.
That seems reasonable enough. And it appears in line with the old s945a which was “reasonable basis for advice”. However, once again, to the untrained, or the blinkered, appropriate advice is more then it seems. And you will shortly see why so many advice files are failing ASIC reviews of quality.
s961G actually says “The provider must only provide the advice to the client if it would be reasonable to conclude that the advice is appropriate to the client, had the provider satisfied the duty under section 961B to act in the best interests of the client.” (emphasis added)
This actually means that if you cannot prove how you have met the safe harbour provisions, there is no way that you can provide appropriate advice.
So is there a fix to the problem, of course there is. When you are going through the advice process, be it the data collection, analysis, or the documentation of the advice, make sure you have clear and concise notes on how you are evidencing each step of the safe harbour.
Finally, I want to come back to my comment before about looking for training opportunities. One of the things that my team and I do constantly is test the outcomes of the advice and look at what other information was required for the adviser to form the opinion that the advice was appropriate. To do this, we often do a lot more research and do more stress testing of the advice. Unfortunately, whilst we can do this to test whether there is detriment to the client because of non-compliant advice, it doesn’t change the fact that if the file didn’t evidence it in the first place, the advice can’t be appropriate (according to the way the legislation is written).
This is also where most advisers will fail a review, because as the old adage goes, “If it’s not documented, it’s not done”.
I get it, we’re time poor, compliance is a drag, I have heard it all before, but when the difference between passing a file review to determine whether you stay in the industry is the amount of care you take with your client file, then I think a few extra minutes is worthwhile.
Remember the five P‘s
Prior Preparation Prevents Poor Performance.
Make sure that when you are using checklists that you are considering what evidence you have on file to prove you have met your obligations.
