- "set out the prescribed information clearly, concisely, and in a manner likely to bring the information to the attention of the client". (surely there is no confusion as to what this means?)
- if charging a fee, then the adviser must specify the basis on which the fee will be charged, a reasonable estimate of what the fee is, and when the client must pay.
- provide details of financial interests and relationships that "a reasonable client would find reasonably likely to materially influence the adviser"
- provide "details of all remuneration....that the adviser.....has received, or will or may receive
Wednesday, 9 May 2012
When is the best time for honesty?
I have found myself talking to several advisers recently about "disclosure" - not a scintillating topic, and one which I'd prefer to not talk about. There are many things far more interesting in life on which you can spend your time.
The disclosure talk has arisen though because it is still apparently confusing, and advisers continue to ask questions on what they actually have to do. One thing I am sure about though, is it is not a good strategy to try and find a clever line that is just on the "right" side of the law (you hope), and then try to make the case later on that you are an honest person.
Honesty in the advice relationship is there right at the beginning, or it is never there at all.
A quick recap on adviser disclosure, as a principle here in New Zealand. Full disclosure applies to Authorised Financial Advisers only, and most are apparently meeting their requirements with a 2-tiered system. They provide a Primary Disclosure Statement when first meeting with a client, which details qualifications and licensing status, and provides general information on how they might be remunerated and what conflicts of interest might arise. Following the specific advice being determined for a client, they then provide their Secondary Disclosure Statement. This secondary statement is where the bulk of the confusion lies, and where there is a tendency for some to still get it wrong I feel.
The rules are actually pretty straightforward. The Secondary Disclosure Statement must (and these are highlighted pertinent points only):
So with such abundance (and I think clear) guidance why would an adviser have a secondary disclosure statement that is generic, templated and holistic information that clearly is aimed at being provided en masse to anyone they deal with?
For example, statements provided following specific advice to a specific client say things like "I may charge you a fee, or I may charge you a commission. There may be bonuses, and I might receive incentives. There might be conflicts of interest, but maybe not....."
How would an adviser, let alone a reasonable client find this sort of statement to clear, concise and specific? Clearly it isn't any of those things - it is not clear what is actually being charged; it is not clear what material influences are actually at work here in this piece of advice; it does not specifically draw the client's attention to conflicts of interest.
Perhaps it is because some advisers are confused over what their obligations are. Perhaps it is because some advisers feel uncomfortable spelling out their cost or remuneration.
Whatever the reason for not providing specific disclosure at the appropriate time, I am reasonably sure such behaviour will be severely frowned upon by regulators. It is also very highly likely that any disputes resolution or legal intervention in the future would place some weight upon the fact that the disclosure was not of an appropriate standard (perhaps bordering on misleading? oooh, there's a nasty thought....). It will be difficult for an adviser to make the case at that junction that they are in fact an honest person who was operating in a professionally transparent manner.
Most importantly though, how can it build trust in the adviser-client relationship if one is not willing to be direct, specific and transparent from the beginning?