Financial planning
Financial planning is the process of determining the most appropriate strategies necessary to achieve a particular individual’s financial and lifestyle objectives.
The range of strategies considered may include retirement planning, budgeting, asset protection, asset allocation, portfolio construction, gearing, personal risk insurance, tax minimisation, business succession planning and estate planning.
Legislative and regulatory context
In Australia, the financial planning industry is a heavily regulated industry. There are specific licensing, financial, operational, training, due diligence and disclosure requirements imposed on any business wishing to provide financial advice.
The relevant legislative, regulatory and industry mandates are primarily to be found in:
- Corporations Act 2001 (Cth) (especially Chapter 7);
- Corporations Regulations 2001 (Cth);
- Australian Securities and Investments Commission Act 2001 (Cth);
- ASIC Regulatory Guides;
- FPA Code of Professional Practice, Code of Ethics and Practice Standards;
- Common law (case law determined by judges)
- Contract law
Essentially, a financial planning business can only operate if it has an appropriate license issued by ASIC, known as an Australian Financial Services Licence (“AFSL”). A financial planner must either have an AFSL, or be an Authorised Representative of an AFSL holder, in order to provide financial advice.
Financial planning process
The financial planning process typically involves the following steps:
1. Ascertain the client’s personal needs, objectives and situation
2. Determine the client’s short, medium and long term financial and lifestyle goals;
3. Consider appropriate strategies to meet the client’s financial and lifestyle goals;
4. Consider appropriate asset allocation and portfolio construction for the client;;
5. Undertake financial modelling to consider impact of recommended strategies;
6. Consider the specific investment products;
7. Prepare a Statement of Advice (“SOA”) for the client outlining the strategies;
8. Discuss and implement the agreed strategies and recommendations for the client;
9. Provide a status report on the client’s investments and other strategies;
10. Review the strategies on a regular (eg. annual) basis and modify as appropriate.
What are the main obligations imposed on financial planners?
Financial planners have a duty to act in their client’s best interests. In discharging this duty, he or she must:
- Investigate the client’s needs, objectives and financial situation adequately;
- Provide advice only if it is reasonable to conclude that the advice is appropriate;
- Conduct reasonable investigations into the financial products to be recommended;
- Place the interests of the client ahead of any interests they have;
- Warn the client if advice is based on incomplete or inaccurate information;
- Make clear, concise and effective disclosure of any material information.
Note that this is not intended to be an exhaustive list. It is, however, indicative of the heavy obligations imposed on financial planners in Australia.
Common issues experienced with financial planners
The following is a list of some of the most common issues found with financial planners:
- Failing to ask enough questions to ascertain the client’s situation, needs and objectives;
- Failing to act in accordance with the client’s instructions;
- Failing to provide the client with an SOA if they give the client personal advice;
- Failing to give the client an SOA in a timely manner;
- Failing to ensure that the recommendations they make meet the client’s situation, needs and objectives (or if they don’t, then explain why not);
- Failing to ensure that their recommendations include advantages and disadvantages:
- Failing to conduct a risk profile of the client, or otherwise to conduct it properly;
- Failing to ensure that asset allocations are consistent with the client’s risk profile;
- Failing to ensure that the products they recommend have been properly researched;
- Failing to keep full records of all communications and research conducted;
- Failing to fully and clearly disclose any conflicts of interest;
- Failing to fully and clearly disclose any fees and commissions received;
- Failing to ensure that costs and fees are disclosed in dollars ($).
Complaints and dispute resolution
If a client is dissatisfied with their financial planner, there are a number of avenues:
- Lodge a complaint/claim with the financial planner directly;
- Lodge a complaint/claim with the financial planner’s AFSL holder;
- Lodge a complaint through the relevant industry body (eg. FPA);
- Lodge a complaint through ASIC;
- Lodge a claim through the Financial Ombudsman Service (“FOS”);
- File a claim in court (such as Magistrates, District or Supreme Court).
For AFSL holders and financial planners, Winthrop Mason Lawyers can assist by:
- Applying for, or varying the terms of, your Australian Financial Services License;
- Drafting, updating or reviewing disclosure documents, such as Financial Services Guides, Statements of Advice, Records of Advice and Product Disclosure Statements;
- Drafting, updating or reviewing internal policies and procedures (such as Investment Research Policy, Gearing Policy, Soft Dollar Policy and Training Policy);
- Advising on a financial planner’s rights and obligations regarding their clients;
- Investigating, managing and negotiating the resolution of complaints and claims;
- Developing an enterprise-level risk management program and compliance program;
- Conducting compliance audits of financial planners’ client files;
- Preparing formal breach notifications for ASIC;
- Negotiating the terms of any proposed Enforceable Undertakings with ASIC;
- Liaising with ASIC and other regulators in relation to any potential compliance issues.
For financial planning clients, Winthrop Mason Lawyers can assist by:
- Reviewing the financial advice provided to you to ensure that it is fully compliant;
- Advising on your legal rights as against your financial planners or AFSL holder;
- Considering strategies and options available in the event of a compensation claim ;
- Calculating the monetary value of your potential compensation claim;
- Investigating, managing and negotiating the resolution of client complaints;
- Negotiating compensation claims with your financial planner and/or their AFSL holder;
- Preparing submissions on your behalf before the Financial Ombudsman Service;
- Commencing legal proceedings against the financial planner and/or AFSL holder.
For a no-obligation initial consultation, go ahead and give us a call.
