The proposed amendments to the General Code of Conduct (GCoC) will affect the record of advice in the future. This article focuses on the proposals regarding the format, suitability analysis, when to decline to recommend a product and what to do if a client chooses not to follow your advice.
The Registrar proposes that it may determine the format and information to be documented in the record of advice. It believes a prescribed format, in certain circumstances, will improve the quality of the record of advice, enhance compliance and may reduce costs for FSPs. In our view, this provision indicates possible concern by the regulator with the quality of records of advice and therefore the suitability of advice it has seen.
It also proposes that the suitability analysis be tailored to clients’ specific circumstances, so the depth of information required from a client may vary, depending on the client’s specific needs and objectives.
This means you may take into account any specific objectives or financial needs the client has explicitly requested you to focus on, or not to focus on. You may take into account the applicable circumstances for this and the fact that the client has explicitly declined to provide any information you have requested.
This suitability analysis makes provision for clients who have a specific need for a “low advice” analysis. The advice provided might have limitations, as a full needs analysis was not done and not all information was gathered and taken into account. The client must therefore be warned that the advice is limited, and the client will need to ensure the product suits his or her needs and objectives that were not considered in this process.
So, before recommending a financial product or solution, conduct a suitability analysis based on a client’s specific needs and circumstances, whether those are complex or simple. In the event of a client complaint, you will need to show that the depth and breadth of information gathered to conduct the suitability analysis was sufficient.
The GCoC requires you to identify the financial product(s) that will be appropriate to a client’s risk profile and financial needs, subject to the limitations imposed on you under the Act or any contractual arrangement. The proposed amendments make it clear that if you cannot identify or offer a suitable product to meet a client’s needs and circumstances, you may not recommend a potentially unsuitable product. Instead, advise the client to seek advice from another FSP.
While the onus is clearly on the advisor, it is not new, as advisors have always been responsible for providing advice that suits a client’s circumstances.
If a client chooses to conclude a transaction that differs from your recommendation, or decides not to follow your advice or wants to receive more limited information or advice that you can provide, you will need to warn the client soonest of any risk. You will also need to advise the client to consider whether any product selected is appropriate to his or her needs, objectives and circumstances. For your protection, keep a clear record where a client deviates from your recommendation.
While the points above are listed as proposed changes, they are more about clarifying responsibilities. They do not change the essence of what is expected of advisors. It makes sense to follow them as it makes you compliant with the FAIS GCoC and ensures that you avoid possible sanctions. It also minimises the possibility of client complaints and increases the chances appropriately identifying clients’ financial needs.
Masthead has submitted commentary to the FSB on the proposed amendments to the GCoC and Specific Code of Conduct for FSPs and Representatives conducting Short-term Deposits Business.