Section 7(4) of the General Code of Conduct (the Code) sets out what advisors must provide to their clients when rendering ongoing financial services to them. While the Code sets out the regulatory requirements, we also take a look at why it is makes good business sense for advisors to conduct client reviews.
The heart of providing sound financial advice to clients is gaining an understanding about their circumstances, their goals and objectives, their needs and their financial situation. Subsequent to the initial analysis and agreed financial plan, an advisor must be able to review the client’s position to identify whether there have been any changes. In order to offer appropriate ongoing advice, advisors must ‘know their clients’ and understand their circumstances and life goals as they change. For instance, has there been a change in the affordability of the client, has the client moved into a higher income bracket or received an inheritance, has a child graduated or a new car or house been purchased, or any other change which may have an impact on the client’s needs and requires an update of the information on record and possibly an alteration to the financial plan, risk and health needs and/or priorities of the client. The Code requires that information must be provided to clients at least annually.
When conducting a review of the client’s portfolio, there may be instances where there have been no changes to the client’s situation and/or the client may elect to make no changes to the portfolio. Even if no further action is required, it is still important for an advisor to keep a record of the discussions and/or interaction with the client. This serves not only as evidence of the review but also ensures that where a client has elected not to address any shortfalls or implement any recommended changes, that this advice is kept on record. This will ensure compliance with the Code which requires that all communication and correspondence with clients is kept on record and protect the advisor should a client question why certain actions were not taken at some point in the future.
Where a client’s financial situation has changed or the client is in a position to address other areas of the financial plan and a new financial product is taken up or changes made to an existing product, the advisor must follow the normal advice process which must also include a record of the advice given. This record will also serve as evidence that a review of the client’s situation was conducted and that the client was provided with advice appropriate to his/her current needs.
Ongoing fees and commissions
The Code prescribes that any ongoing fees and/or commissions must be disclosed to a client at least once a year. Conducting a client review will ensure that the fees/commissions earned are properly explained to the client and that the advisor keeps a record of any premium increases or ongoing fees. This will help clients to understand what they are paying for and provide an opportunity for the advisor to explain and demonstrate the value of the financial service provided.
Product benefits and values
Advisors must also provide clients with information about the main benefits of the products they have, the value of their investments and savings and how much is accessible as well as the value of their risk cover. Once advisors show clients what these values are, within the context of the updated information and needs analysis, they will be able to determine if there are any shortfalls in their financial ‘portfolio’ and how best to address these.
Assisting clients with this process at least annually will indicate to clients that their advisor has their interest at heart. This will contribute to building a lasting business relationship between advisor and client and ensure that the business continues to grow. Clients want to feel assured that their advisor is someone that they can trust and who will be open and honest with them regarding their financial position, thereby enhancing customer confidence. An advisor will only be in a position to provide a client with clear information of his financial standing if he conducts a review, which takes the clients most current financial needs and objectives into consideration.
Effect on Treating Customers Fairly (TCF) outcome
Lastly, Treating Customers Fairly (TCF) is a set of principles and outcomes which must be integrated into all areas of the business of an FSP. An FSP must be able to show that it is the culture of the business is to treat clients fairly. When clients experience this, their confidence in the FSP and their advisor should grow and they are more likely to be loyal customers.
One of the TCF outcomes that an FSP must continue to measure itself against is whether it can show that “customers are provided with products that perform as firms have led them to expect, and the associated service is both of an acceptable standard and what they have been led to expect.” In order for an FSP to achieve this outcome and fulfill the spirit and objectives of TCF, there must be an ongoing evaluation and assessment of the client’s needs and objectives to make sure that the product/s continue to meet the clients’ needs.
There is a clear link between delivering the agreed service levels to clients on an ongoing basis and building a sustainable business with loyal customers. The review process together with agreed service levels, is something that advisors should carefully design to ensure that customers are taken care of and the business can grow.