Gathering appropriate information from a client before providing advice helps you to meet the suitability requirement prescribed by the General Code of Conduct, and it will enable you to give your client appropriate and suitable advice.
Section 8(1)(a) of the Code states:
A provider … must, prior to providing a client with advice –
- take reasonable steps to seek from the client appropriate and available information regarding the client’s financial situation, financial product experience and objectives to enable the provider to provide the client with appropriate advice.”
There have been several Ombud determinations against advisors who have not complied with the code. The determination of Peens v Huis van Oranje Finansiële Dienste and others reveals that an advisor is expected to give suitable advice and must gather sufficient information to do so.
In this determination, the Ombud found the respondent failed to elicit personal information from the complainant, including her financial situation, to show an understanding of the complainant’s needs prior to advising her. The Ombud upheld the complainant’s claim for R125 000.
In another matter, Bhengu v Outsurance, the Ombud determined that to adhere to Section 15 of the Code (Section 8(1) for financial advisors), the right questions must be asked to gather appropriate information.
How to gather sufficient information
To gather sufficient information, see yourself as a valued advisor, someone who wants to build a client relationship rather than just generate a sale. Prince and Grove, authors of Wealth Management: The New Business Model for Financial Advisors, quantify the approach for advisors in six key areas:
Find out what your client’s personal and professional goals are and what your client’s needs are in respect of family and friends. This will form the foundation of your recommendations.
Establish which relationships are most important to your client, what your client’s religious orientation is and how devout he or she is. This may lead to discussions on insurance needs, the need for a family (or charitable) trust and if your client desires to support a charitable cause.
- Assets, liabilities, income and expenditure
Ask investment-related questions: find out how your client’s assets are structured, sources of income and their liabilities and expenditure. Tax can also impact clients’ likelihood of achieving their goals, and a proper account structure can minimise tax liability. Incorporating these considerations will increase the success of your client reaching his or her goals.
Query your client’s existing relationships with other advisors. Knowing why clients have decided to join or leave an advisor may also help you avoid a potentially burdensome relationship.
Administrative details will help you to better understand your client’s expectations of your service and relationship, so ask how and how often your client would like to be contacted.
Get to know your client on a personal level, as this may also highlight areas of risk or your client’s other financial needs. For instance, find out how often your client travels and what his or her hobbies are. Talk about the weekend’s sport. Strengthening the relationship between you and your client could also generate referrals.
Although these six key areas are not exhaustive, they will assist in helping you to gather sufficient information to know your clients to ensure the advice you give is appropriate and sufficient to meet their financial needs. This will also help you to avoid severe claims and determinations in the office of the FAIS Ombud.