Claire Wivell Plater

The removal of the ban on conflicted remuneration for general advice in the proposed changes to the Future of Financial Advice (FoFA) legislation may provide new opportunities for financial advice businesses who want to provide scaled advice, according to Claire Wivell Plater, managing director of The Fold Legal.

“General advice is another form of scaled advice. We see an opportunity for financial planning businesses to offer general advice – for example, to clients who want to make their own investment decisions or who don’t want to pay for a full advisory service,” Ms Wivell Plater says. “This would allow financial advice businesses to introduce a general advice model for this type of client.”

Ms Wivell Plater says there are many ways this type of advice can be provided – via the internet, by telephone or in person.  If the business then arranges for the client to acquire the financial product, they can be remunerated by commission for the services.

However, Ms Wivell Plater warns that in full service and ongoing advice relationships, where a financial adviser has undertaken a detailed needs analysis and the client expects and pays for the adviser to recommend strategies and investments that will achieve their personal goals, advice will be personal.

“Businesses that want to provide general advice need to have a detailed understanding of when advice is considered general and when it is considered personal. In the early days of the AFS regime, there was some uncertainty over where to draw the line,” she says. “But we’re pretty clear about it now – and we’ve got pretty good at developing sales process and training that ensure the adviser stays on the general side of the advice spectrum.”

Ms Wivell Plater says care should be taken to consider what relationship the client believes is in play. “If a client reasonably believes they have been provided with personal advice, then the advice will be considered personal, even if the adviser intended to give general advice and even if the adviser thought it was general,” she says.

Ms Wivell Plater also says that Statements of Advice (SOA)s aren’t required when general advice is given. “Instead, a ‘general advice warning’ needs to be provided,” she says. “Full service financial planners and their authorising licensees are unlikely to rely on this, because they know the obligation to provide an SOA is a core part of the AFS regime and they won’t want to run the risk of breaching it.”

There is a place for general advice, according to Ms Wivell Plater, in particular, where all the client wants is a product to fulfill a specific need. “This happens a lot with general insurance and some life insurance. It is rarer in financial advice relationships,” she says. “We expect product providers to make the most use of the removal of the ban on commissions for general advice because it will allow them to remunerate on the basis of sales.”

Staff need to be carefully trained on how not to provide personal advice – but she says this is not new. “The Fold has helped many, many general and life insurance business do this over the past 10 years.”

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This is one of the key trends that financial software innovator Decimal says highlights the immediate challenges for financial advice technology in the highly fluid, post-FOFA environment. 

“We have brought to market online tools that enable the delivery of quality, compliant advice on a large scale without increasing costs,” said Decimal Managing Director Mr Jan Kolbusz. 

“The tools are also fast. Yet, we worry about placing too much emphasis – as is a simplistic view in certain quarters – that faster SOAs are better. We know that advisers in fact find that faster is not always better, if it also means more labour, effort and input cost to ensure a proper compliance standard is met.  

“The last thing the financial advice industry needs is compromised advice outcomes on the basis that we have singularly pursued speedy SOA delivery,” Mr Kolbusz warned. 

Back-office administration expert, Mr Patrick Walford, at Marketshare Solutions, says advisers require a clearer picture of the full spectrum of advice delivery – from fact find to implementation. 

“With a system such as Decimal, an adviser can see in real-time the exact nature of the advice and the detail around the advice in the instant that the SOA has been created. Any advisory compliance and administration questions can all be dealt with, within 30 minutes of the SOA being issued. 

“This is far more efficient as it also removes the old ‘back and forth interactions’ syndrome which previously took many days to resolve,” Mr Walford said.
 
Mr Kolbusz said financial advisers are also reporting fresh challenges in an environment where pressure is mounting for more client interaction and engagement. 

“But on the other hand, the need to deliver quality advice that is 100 per cent compliant without increasing costs. Both can be achieved,” he said. 

“A robust compliance system, where at every stage of the financial advice process, compliance officers can view every interaction with the consumer in real-time, can help to reduce compliance risks and maximise the potential to deliver quality financial advice to consumers,” says Mr Jan Kolbusz.

“Be it from engagement, fact finding through to SOA production and fulfillment, compliance officers can examine the appropriateness of the advice in real-time.  With a traceable history, advisers are always audit ready.”

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