Multi-manager funds avoid FOFA complaints: Russell
Financial planners should employ diversified, multi-manager funds to avoid complaints under the Future of Financial Advice (FOFA) 'best interest' duty, according to head of advice capability at Russell Investments John Nolan.
Nolan said even good financial planners would eventually face a complaint, whether right or wrong, and a lack of clarity around what constitutes 'best interest' would increase scrutiny on the planner.
"I don't think it matters whether you're a good adviser or a bad adviser; inevitably there will be a complaint made by a client even if it's just a misunderstanding and it's your ability to respond to that that's going to set you apart," he said.
The Financial Ombudsman Service 2010/2011 annual review suggested 'pay to play' can cost up to $3000. Nolan said cases he has defended required thousands of pages of documentation and took the compliance team days of work.
"It's really going to get tested in the courts but before it gets tested in the courts, I think it's going to be tested by the Financial Ombudsman Service, and you're basically guilty until you're proven innocent," he said.
Nolan said even wins felt like losses because of costs to the planner. He said planners with lower value clients should not go "out on a limb to recommend an exotic product" because if it blows up, clients would head to the Financial Ombudsman Service.
He said planners needed a low-cost, low-risk product to avoid complaints and should employ multi-manager funds. Although they would not produce exceptionally high returns, planners could be pretty confident they would not blow-up, freeze or cause stress to the client, he said.
"If you're dealing with your mum and dad investor or client with a lower level of funds that don't want to take a huge risk or take a particular punt in an area, I think multi-manager is just a no-brainer," he said.
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