Industry bodies overstate need to act on their advice: Disclosure onus stays with customer

Friday 3rd August 2001

By Peter V O'Brien

The FPIA (Financial Planners and Insurance Advisers) was formed in 1999 when the Insurance & Investment Advisers' Association and the Association of Investment Advisers & Financial Planners merged.

Literature from the association says its primary purpose is to improve and enhance the professional status of financial planners and insurance advisers and to advance the interests of members and their clients.

It seeks to do that through raising advisory standards in ethics and professional conduct and by providing new education standards specifically designed to inspire greater confidence and trust between advisers and the public.

Association chief executive Philip Matthews says the organisation had about 1250 members split roughly 50/50 between two "colleges," one for certified financial planners (CFP) and the other for chartered life underwriters (CLU).

The Investment Savings and Insurance Association (ISI) also has membership with considerable involvement in financial planning and investment advice, with greater emphasis probably on the latter.

Members are the organisations that run the managed funds available to people who want professional management of their money.

FPIA members could be described as being the link between the investor and the funds, and/or life insurance companies.

Mr Matthews said the FPIA was proud of its members' standard of advice although there could be improvement in systems in some cases.

He also said if one looked back at cases of "mis-selling" it would be seen they were not products of the association's members.

People who have dealt with particular FPIA members will have their personal views of the standard of advice given and efficiency with which other matters were handled but the FPIA's literature sets out what should be done on both sides of the relationship.

A brochure, Why Choose a Certified Financial Planner Practitioner, says CFPs follow and internationally recognised process:

They will help to compile a complete/picture of the current situation and determine your objectives;
They will work with you to identify your financial goals, needs and aspirations. "Your adviser will help you define your financial goals - education, retirement, travel, holiday home etc;"
They will analyse your current situation;
They will identify weak points and recommend improvements;
They will co-ordinate the implementation of your plan. "In doing so they will co-ordinate with other professional specialists as required, such as solicitors or accountants."

People are recommended to shop around and if necessary compare two or three different advisers; they should ask plenty of questions ask about qualifications and whether the adviser is a FPIA member; ask for a copy of the disclosure document; get the adviser to complete a full needs analysis with a written report or plan; look for any danger signs; act on advice "otherwise what's the point of having sought it?" and regularly review the programme with the adviser.

Most of that is basic advice and a logical approach to selecting anybody in any profession, but one could query a couple of points.

A person who is not a FPIA member is not necessarily a lesser being in the advisory business, particularly as there is no legal requirement to be a member of any organisation.

For example, there are many who have given investment advice on a professional basis for years, shown a good track record (including, with due modesty, this writer) and are not part of the FPIA.

Under current association policy they could become members but would have to qualify through formal educational requirements, go though various steps, including a "mentoring" system, before obtaining CFP status.

Some of us would say, why bother, having being involved in this business from a time when, apart from accountancy firms and a few solicitors, the number of independent financial/
investment advisers, excluding insurance agents associated with life offices, could be counted on one's fingers.

Still, there is nothing wrong in promoting one's industry, as the FPIA seems to be doing well, given its number of members.

The step about "act on advice, otherwise what's the point of having sought it?" might help the association's members but in some cases could be overstating case for them.

The fact that advice has been sought and given is no reason for accepting it without question in any professional field

Wisdom does not necessarily exist in people because they are members of a professional organisation.

Rubbish can be rubbish, irrespective from where is emanates and even those with little financial expertise have the intellectual capacity to decide when they have been presented with rubbish.

The comment about "danger signs" was valid.

People who have been fooled into "investing" in various overseas-based scams (including some who should have known better, given their backgrounds) should note them.

"Look for any danger signs, especially inflated promises returns that seem too good to be true (they probably are!), putting all your eggs in one basket, an unbalanced plan, high fees, no prospectus ... on your investment of policy - watch for changes that might affect you."

That sat oddly with the idea that one should act on the advice (a recommendation that was unqualified) assuming the awareness of danger signals would make the client reject the advice.

The growth of the FPIA and the two organisations that preceded it in a relatively short period is indicative of the increased complexity of financial markets since the 1970s and the emergence of another service industry to match those that developed whenever a need is perceived, or created so the customers are persuaded a need should be perceived.

The lack of compulsion in the investment advisory and financial planning industry even extends to disclosure of an adviser's experience and qualifications.

Rules governing that matter advise people they have the right to request from any investment adviser a written disclosure statement stating his or her experience and qualifications to give advice.

That document will tell the person:

whether the adviser gives advice only about particular types of investment;
whether the advice is limited to the investments offered by one or more particular financial organisations; and
whether the adviser will receive a commission or other bonus from advising the person.

People are strongly recommended to request that statement. An investment adviser commits an offence if he or she does not provide a written disclosure within five working days of the request.

The request must be made at the time the advice is given or within one month of receiving the advice. In addition:

If an investment adviser has any conviction for dishonestly or has been adjudged bankrupt, he or she must tell that is writing; and
If an investment adviser receives any money or assets on the client's behalf, he or she must tell you in writing the methods employed for this purpose.

People are advised to tell the adviser the purpose of the investment. That is important because different investments are suitable for different purpose.

Note the language. People "have the right to request," they are "strongly recommended to request that statement," they "must make the request" within a given period and they should" tell the adviser" the purpose of the investment.

The onus is on the person seeking advice.

That seems to be a cart-before-the-horse process, apart from the suggestion that the person tells the adviser the purpose of the investment.

There is a case for requiring the adviser to provide the rest of the information at the first approach.

Members of the FPIA must produce their disclosure document to people dealing with them. That is required under the association's code of ethics and professional conduct, but as noted earlier an adviser/ financial planner does not have to be a member of the FPIA.

It is hardly a massive task for a non-association member to draw up his or her qualifications and the rest of the information, have it in printed form and provide at the first meeting without being asked instead of waiting for a request.

There is a strange habit in various aspects of the securities industry for the national authorities and regulatory bodies to operate lightly when other professions are tightly controlled, people must have specific qualifications and be members of professional bodies.

The latter are usually statute-based, as in the case of accountants, lawyers, medical practitioners, and so on.

- Peter V O'Brien

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