Your business can avoid multiple risks by having a proper review process in place.
By doing so, not only would your FSP be compliant with FAIS legislation, but you could avoid client complaints to the Ombud and reputational damage to your business. Following the correct process, you can also reinforce client relationships and treat customers fairly.
The basis of the client review
The basis of the client review is found in Section 7(4) of the General Code of Conduct (GCoC). This states:
“A provider who has provided advice to a client or is rendering ongoing financial services to the client in respect of one or more financial products, must on a regular basis (but not less frequently than annually) provide the client with a written statement identifying such products where they are still in existence, and providing brief current details (where applicable), of –
a) any ongoing monetary obligations of the client in respect of such products;
b) the main benefits provided by the products;
c) where any product was marketed or positioned as an investment or as having an investment component, the value of the investment and the amount of such value which is accessible to the client; and
d) any ongoing incentives, consideration, commission, fee or brokerage payable to the provider in respect of such products:
Provided that such a statement need not be provided where the client is aware, or ought reasonably to be aware, that the provider concerned does not render or has ceased rendering ongoing financial services in respect of the client or the products concerned.”
Most advisors face a dilemma when arranging their yearly review with clients: they contact the client several times, but the client does not return the call or commit to a meeting. In these instances, you could send your client an updated portfolio schedule via email or post.
This is also an opportune time to give the client an updated disclosure letter, considering all the licence changes that have occurred. It is also the time to review and segment your client base to avoid possible complaints, such as in the case of Broker A:
Mrs V, a long-standing client of Broker A, chose to replace her cover. When Broker A received the Replacement Policy Advice Record (RPAR), completed by Broker X, the replacing broker, he believed Mrs V was no longer part of his client base. Five years later, Mrs V’s daughter contacted Broker A to submit a claim, to which he replied he was no longer Mrs V’s appointed broker. On investigation, it was deduced that Mrs V did not replace her policy due to a loading. Broker A had not complied with legislation, as he should have removed himself as the broker on record and informed the client accordingly.
Correct termination process
The termination process is structured according to Section 20 of the GCoC to ensure FSPs consistently deliver fair outcomes to their clients. Clients can voluntarily request a termination of business relationship with an FSP, or an FSP can terminate a business relationship with a client.
To end a business relationship, the FSP needs to:
- Confirm the request in writing within a reasonable time. The report or letter must highlight the implications to ensure the client fully understands the consequences of his/her actions.
- Encourage the client to obtain financial services elsewhere.
- Ensure all outstanding business is concluded.
- Inform the product provider within a reasonable time to stop payment of commission.
- Maintain records for five years after the termination date.
- Document this process as an additional measure and ensure all staff in the FSP are aware of it.
A case experienced in practice
A client complained to a product provider that since the broker on record did not conduct annual reviews, he was not made aware of the volatility of the financial markets and therefore lost money on his investment. The broker on record was unable to escape liability, as he did not communicate with the client for over three years. Although he did not have to compensate the client for the full loss on the investment, he had to pay back commission earned to the client to compensate for his losses.
To ensure the longevity of your business, take the opportunity to review your processes and ensure they align with legislative requirements.