Against a constantly changing financial landscape, the Financial Advisor’s role is to steer the client in developing a well thought out financial plan that establishes the client’s goals and objectives, which will ultimately achieve their identified financial goals. The financial plan must be frequently reviewed and adjusted to suit any changes in the client’s circumstances.
Frequently reviewing the client’s financial plan satisfies the requirement of the General Code of Conduct which requires FSPs to establish an annual review process. It also provides the perfect opportunity to ensure that your service delivery model has the elements of both delivering services in the right way, as well as delivering a service that has a positive impact on client satisfaction.
Articles often illustrate the importance of choosing a Financial Advisor that one can trust. The reassurance you give your clients, ie. that you care about their financial well-being, is part of what keeps clients coming back. Imagine this scenario; your client has prepared a list of criteria they are looking for in a financial advisor and calls you to an interview. Would you meet the criteria for the “job”? The requirements and interview questions, for instance, could include:
- Is there integrity at the core of the business: A financial advisor that continually generates commission regardless of how well the product suits the client, shows a lack of integrity.
- Transparency with fees: Clients want to know how much money they are paying for your service.
- Level of expertise: Are your clients comfortable in referring you to prospective clients?
- Client communication: How often do your clients hear from you?
- Patience and acumen: Do you take the time to explain your recommendations? Does the recommendation align with the client’s ultimate goals?
These requirements are not new. They are, in fact, embodied in the General Code of Conduct and the Treating Customers Fairly framework. Doing things the ‘right’ way based on good principles will make compliance ‘easier’.
Once you have established that you meet the necessary criteria, how do you articulate this to your clients? The annual review process provides the ideal opportunity.
Section 7 (4) of the FAIS General Code of Conduct states:
It must be noted that not all the Section 7 disclosures listed above would be relevant to all FSPs. For example, a short-term insurance product would not have an investment portion nor would there be forecasts available. There are however several disclosures that would be relevant and a short-term FSP can therefore not ignore the Section 7 disclosure requirements.
Things to consider when setting up an annual review process
Segmentation may be a strategy adopted by many advisors to group clients by specific needs and tailor their service to match those needs. This is particularly important in a fee based environment. The main components of segmentation are time and effort.
Service Level Agreement
Your Service Level Agreement will help you with this. Consider the frequency you have agreed to carry out a review. Was it annual, bi-annual or quarterly? Then consider your review method. Will you meet the client, or will a personalised email or phone call do? A reminder system is very important for reviews and communication and use of a simple, secure database to ease the administrative work is also an important consideration.
Review of the client’s benefits, goals and circumstances
Looking at the components of section 7(4), advisors can now re-articulate the benefits, goals and objectives of the client’s plan, focusing on whether the client is on track, but also showing commitment to the progress of the plan. Establish if any changes have occurred that would affect the plan. Ensure the plan is holistic and covers as many aspects of the client’s financial goals and objectives as possible, for example retirement and investment, consider risk and tax effectiveness.
Clear and transparent communication
On the investment front, ensure asset allocation is appropriate and encourage discussion on risk tolerance. Establish if your client understands the meaning of risk and re-iterate the reason for solutions and products taken, to achieve the specific goals and outcomes. Always keep the communication lines open and ensure transparency with regards to fees earned.
The annual review experience must ultimately leave your clients feeling valued and well serviced. This underpins your relationship for the long term and secures the trust factor that is crucial to the financial planning process.