Advising on platforms - Best interest and looking beyond cost

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General use

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See wealth differently

See wealth differently

ADVISING ON PLATFORMS – LOOKING BEYOND COST.

Simon Carrodus June 2021

THEFOLDLEGAL.COM.AU

WHAT WE’LL COVER TODAY.  The problem.  How did we get here?  Post-Royal Commission world.  Compensation, compliance and fear.

 Best interests duty as it applies to

platform advice.

 Questions.

THE PROBLEM. + “You cannot switch a client to a more expensive platform.”

OR + “You must switch all of your clients across to the cheapest platform.”

HOW DID WE GET HERE?  Bad old days of pre-

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determined advice outcomes.

Renewed focus on best interests duty.

ASIC investigations.

Royal Commission.

Large scale client compensation.

Fear and overcorrection.

Full circle.

POST-ROYAL COMMISSION WORLD. 

Since the Royal Commission, ASIC has been prolific in pursuing fines, disqualifications and criminal charges against individuals and businesses.

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Hundreds of millions of dollars in compensation has been paid to clients.

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Advisers and licensees have been forced to adapt to a much tougher regulatory environment.

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Increased compliance costs and a sharper the focus on the adviser’s obligation to act in the client’s the best interests.

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Propelled a more conservative and restrictive approach to platform advice.

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Many licensees have a adopted a ‘cheapest is best’ approach.

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This blanket approach ignores the specific needs, objective and preferences of the client.

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Let’s take a look at what the law asks an adviser to do when advising on choice of platform.

BEST INTERESTS DUTY. + Act in the client’s best interests. + Safe harbour provision. + Identify client’s needs and objectives + Identify subject matter of advice + Make reasonable enquiries + Assess own expertise + Do your product research + Base all judgements on client’s needs and objectives

APPROPRIATE ADVICE. +

Advisers should be able to demonstrate a clear client benefit to every recommendation they make.

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If you cannot articulate a clear client benefit, you should reconsider the recommendation.

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You should explain: +

How the recommendation addresses client’s needs and objectives

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Why the recommendation is likely to leave client in a better position

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Every client is different – the advice outcome should not be predetermined.

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Each recommendation should be linked to one or more of the client’s needs, objectives and preferences.

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Price is a consideration, but rarely the only consideration.

WHERE DO ADVISERS GO WRONG? + ASIC Reports 515 and

562.

+ Failure to do adequate

product research.

+ Failure to tailor the advice

to each individual client.

+ Failure to keep proper

documentation.

+ Tree falling in the woods.

HISTORY REPEATING. + Fear of client compensation and regulatory

action.

+ Overcorrection: + Short-circuit the advice process. + Assume that the cheapest platform is appropriate for every client. + Ignore individual client needs, objectives and preferences.

+ Pre-determining the advice outcome = best

interest duty failure.

DIFFERENT STROKES.  Not all platforms are created equal.  Platforms have grown in complexity and

functionality.

 Fully customisable with extended features vs

simple with limited functionality.

 Some clients have specific needs, objectives

and preferences that can be satisfied by some platforms, but not others.

 There is no one-size-fits-all solution.

ADVISING ON PLATFORM. +

Identify and assess the client’s needs, objectives and platform preferences.

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Research the client’s existing platform.

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Does the existing platform satisfy the client’s needs, objectives and preferences?

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If not, the best interests duty demands that you research other platforms that may better satisfy the client’s needs, objectives and preferences.

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Conduct a comparative analysis of the existing platform vs the proposed replacement platform.

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If you recommend a replacement platform, you must justify the recommendation. You should clearly explain: +

How the replacement platform will satisfy the client’s needs, objectives and preferences;

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Why the replacement platform is likely to leave client in a better position;

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Any trade-offs to the recommendation, and why the recommendation is still justified in the circumstances;

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Any alternative strategies that you considered (e.g. remain with current platform) and why those strategies are less advantageous for the client.

WHAT DOES BAD LOOK LIKE? “This platform offers online access, 500+ investment options, consolidated reporting etc…”

“I’m switching all of my clients to this platform because [insert reason]…”

WHAT DOES GOOD LOOK LIKE? “Jack, you want access to direct equities and alternative investments. Your current platform doesn’t offer this, so I’ve recommended one that does.”

“Jill, you want to track a consolidated view of all of your investments, including those held off-platform. Your current platform doesn’t offer this. I’ve recommended a platform that does.”

Good questions = Good advice + Ask questions to determine the needs, objectives

and preferences of the client.

+ Ask about costs, but also about functionality,

access to investments, insurance options, visibility, reporting etc.

+ Research the client’s existing platform and other

platforms that may satisfy the client’s needs, objectives and preferences.

+ Tailor the advice to the client’s needs, objectives

and preferences.

+ If you don't ask, you won’t know.

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