Scaled advice rules open for interpretation
The continuing lack of clarity around the regulatory guidance on scaled advice has the potential to give rise to liability issues for financial advisers, according to some financial services licensees.
The Australian Securities and Investments Commission (ASIC) released its Regulatory Guide 244: 'Giving information, general advice and scaled advice' late last year, which explains how to meet legal obligations with respect to scaled advice.
In the regulatory guide, there are a few occasions where ASIC instructs financial planners to use their own judgement.
"You (as the advice provider) must use your judgement when deciding on the scope of the advice," the regulator stated in the guide. "You must determine the scope of advice in a way that is consistent with the client's relevant circumstances and the subject matter of the advice they are seeking."
This type of wording, according to managing director of IOOF-owned dealer group MyAdviser, Philippa Sheehan, is not always a good thing when it comes to legislation.
"We need the boundaries to be very, very clear so that if things go wrong we know exactly where someone may have stepped outside the mark," Sheehan said.
"What happens if there ends up being a client complaint and the adviser made a reasonable interpretation to think one thing - but the Financial Ombudsman Service (FOS) - who we have to be a member of - does not think that that is a reasonable position," she added.
"So now we're in a four-way struggle between ASIC, the client, the adviser and FOS."
Director of advice at AMP (which launched its advice services in July last year), Scott Machin, accepts it is impossible to provide absolute guidance on topics such as scaled advice, so it is up to licensees to train their planners when it comes to grey areas.
"Ultimately we have to equip the planners with that element of judgement where they can make a call about what to do in particular situations," Machin said.
"The more guidance ASIC can provide the better it is," he said. "Ultimately in areas that are open to interpretation it is up to the planners to determine the most appropriate course of action for each individual client based on those circumstances."
General manager of Pathway Licensee Services Kate Humphries said many of her clients are struggling to define some rules.
"It's basically saying that you need to consider anything else that could impact the advice," Humphries said.
"That's the bit where people are saying, 'how do we define some rules around safe harbour'."
Humphries suggested licensees draft a terms of engagement contract, which would be provided to the client outside of the statement of advice (SOA).
A terms of engagement contract, she says, would ensure the client understands - and signs - the exact reasons for visiting a planner.
"So you will have a specific SOA which will scale the advice, and then you will have an added step - a lot of people are already doing this," Humphries said.
Recommended for you
ASIC has released the results of its first adviser exam to be held in 2025, with 241 candidates attempting the test.
Quarterly Wealth Data analysis has uncovered positive improvements in financial adviser numbers compared with losses in the prior corresponding period.
Holding portfolios that are too complex or personalised can be a detractor for acquirers of financial advice firms as they require too much effort to maintain post-acquisition.
As the financial advice profession continues to wait on further DBFO legislation, industry commentators have encouraged advisers to act now in driving practice efficiency.
