Monitor portfolios to avoid liability
Financial advisers who offer to provide ongoing portfolio monitoring services will be liable if the client experiences financial loss as a result of them failing to do so.
Such was the warning from The Fold Legal, which said focus had shifted from financial product suitability post the Global Financial Crisis to advisers' ongoing service obligations for monitoring and managing portfolios.
The law firm's managing director, Claire Wivell Plater, said it was vital for advisers to clearly set out their ongoing service obligations to clients, and said they may be contractually obligated to provide ongoing portfolio monitoring (perhaps quarterly) unless explicitly stated otherwise.
"Failure to do so could result in hefty compensation payments. It is not unreasonable for clients who pay an ongoing fee to expect their adviser will tell them if the market is dropping," Wivell Plater said, adding the regulators were increasingly likely to scrutinise ongoing monitoring of client portfolios.
She also said there were many examples in the Financial Ombudsman Service's archives of successful complaints against advisers who failed to warn clients about poor portfolio performance.
While investment commissions were banned in 2013 and advisers began charging a percentage of assets under management to offset the dip in commission revenue, this also increased transparency around ongoing advice fees.
Not only must advisers provide an annual fee disclosure statement highlighting the services they provided in the past 12 months, clients can also stop ongoing fee arrangements with little or no warning.
Advisers could use technology to access and monitor portfolios, and while specific technologies would not be compulsory, the regulations would reflect technological developments, Wivell Plater said.
"Clip the ticket and take a fee. Maybe it was possible once, but not anymore. Advisers who are unable to demonstrate that they are proactively monitoring client portfolios could find it difficult to satisfy the regulator that they have appropriate systems in place."
AUTHOR
Malavika Santhebennur
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