Know your client

It is my experience that the most common complaint arises from a misreading of the client.

And isn’t it always the case that nobody complains about good secure returns but everybody complains about a loss?

Clients who are risk takers suddenly remember that they were risk averse, or at least argue that you, as the professional, should have better expressed to them the meaning of risk and that you should have better assessed their risk profile.

In the early days of financial planning, it was no doubt sufficient to simply ask the client to identify their own risk profile and to advise accordingly.

The growing nature of consumerism, however, is requiring all professionals to be more proactive in their approach to providing professional services.

In the consumer age, the judicial system is adopting a consumerist approach.

This is demonstrated in the Supreme Court of Tasmania decision of Hutt v Piggott (1991) where a solicitor acting on a personal injury claim was held liable (even though they won the personal injury claim on behalf of the client), for not advising on the social security ramifications of winning the personal injury claim.

The court was of the view that the solicitor knew or ought to have known that the client would have faced social security ramifications and should have advised accordingly.

The accountant in Pech & Anor v Tigals & Anor (1994) lost because the court agreed with the clients’ claim that the accountant should have advised on the taxation ramifications flowing from the events that occurred prior to the client becoming a client of the accountant.

Again, the accountant knew the client and, as a professional, should have known of the continuing risks arising from past events and should have advised.

Both these and other cases demonstrate the need to extract more than just a superficial understanding of the client.

The obligation that is now placed on professionals is to proactively enquire and determine the needs of the client. And this is under circumstances that are not necessarily limited to the client’s brief.

Hence, in my view, the ‘know your client’ rule is not simply ‘listen to what they say’, but proactively identify and understand the client and how this may impact upon the services that must be provided.

In a financial planning context, this includes a stand-alone assessment of the client’s risk profile.

Peter Bobbin is a partner at The Argyle Partnership .