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The blog has a new name, which is reflected in the domain name (as above)

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5 steps to playing it safe

By Tony Vidler

 

How does an adviser play it safe when it comes to proving that they have acted in the best interests of the client?

There are 5 key things that the adviser must do - and be able to evidence afterwards - to show that they have worked for the benefit of the client, and not acted out of self-interest.

It comes down to being able to show that you "know your client".

Knowing your client (as a principle of regulatory testing) is about understanding the clients situation and needs in order to provide suitable advice that is most likely to help them achieve their objectives.

The 5 things an adviser must do in order to play it safe, and be able to show they have been working in the clients interests, consist of 3 process steps and 2 ethical considerations.  They are:

1.  Identify the objectives and needs of the client, together with showing they know the clients financial situation

2.  There must be clear instructions regarding what advice is being sought, or offered.

3.  The relevant client circumstances need to be understood and documented.

Gathering the right information and having clear understanding with the client, as outlined in these three steps, will go a long way towards satisfying future critics.  However, to ensure that you are REALLY working in the client's best interest, two further tests can be applied.

4.  Did the adviser to attempt to find out more information regarding the client's circumstances if it could be considered "reasonably apparent" that the information provided by the client was inaccurate or incomplete?

5.  Does  the adviser have the competency and expertise to provide the advice required?  This is effectively a self-assessment on the advisers' part - but hey, we know whether we know enough to do the job properly really don't we?   

In reality, the ethical tests are never applied - unless the regulator comes knocking for an audit, or a customer expresses dissatisfaction.  Both of those circumstances can happen at any time, so you do have to apply these tests.  If you find yourself as an adviser thinking "I don't think I have the knowledge to do that really well"....then you really should decline to try and provide the advice.  Otherwise you are inviting future dissatisfaction and problems.

One of the key things that is often misunderstood by financial advisers is that you will rarely be playing in terribly unsafe territory because of product non-performance (e.g. problem insurance claims, investment market losses) - IF your process is sound.  The adviser will be judged primarily on the basis of the processes they can prove to have used, and the extent to which they have demonstrated the principle of "the clients interest first".

To play it safe as an adviser therefore there are 2 big things to do:

* have a process showing you understand your client, their circumstances, and objectives

* conduct yourself honestly - especially in assessing your own competency

further reading:

Best Practice: ASIC doesn't expect perfection

http://www.professionalplanner.com.au/regulators/best-practice-asic-doesn’t-expect-perfection/

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Why Dirty Harry wouldn't win a Gold Medal

by Tony Vidler.

One of the great movie lines spoken by the character Dirty Harry was "a man's got to know his limitations".  A line which always seems to apply to financial advisers.

But this doesn't apply to Olympians does it?  

I am captivated by the incredible achievements of humans that is demonstrated at the Olympics, and their ability to continually re-define their (apparent) limitations.  

You cannot help watching them, admiring them, and then wondering how you can apply what they know and do, to the non-Olympic and mere-mortal world we live in.

At the London 2012 games 2 athletes standout for me personally, on the basis of how they continually have re-defined their own expectations (or self-limitations).  

Michael Phelps must be considered one of the greatest athletes of all time, and his record is remarkable.  The second athlete to stand out for me is also a swimmer - who did not win a medal.

Lauren Boyle, from New Zealand. What a remarkable young lady - and the epitome of a "champion".

She came 4th in the 800m freestyle final.  But to get there she had to continue, race by race, to swim faster than she had ever swum in her life.  Breaking her own national records to get to the final, and then under the immense pressure of the final of an Olympic glamor event, she lifted another notch again.   And at the end of the race, was she upset at getting 4th?  Not on your life...she recognized that she had challenged her own beliefs, re-defined her apparent limitations, and found a new confidence and performance level.

So what do Lauren & Michael Phelps have in common?

Well, they both have a coach that they listen to and learn from.  They apply process and systems to enhance their training and "professional development".  They take advice from their mentors.  It is up to them to put that advice into action and performance though.

According to a study of Olympic Champions here are their common denominators for success:

Characteristics of Champions

  An ability to cope with and control anxiety.

  Confidence

  Mental toughness/resiliency

  Sport intelligence

  An ability to focus and block distractions

  Competitiveness

  A hard-work ethic

  An ability to set and achieve goals

  Coachability

  High levels of dispositional hope

  Optimism

  Adaptive perfectionism

Source:  Psychological characteristics and their development in Olympic champions.

Gould, D., Diffenback, K., & Moffett, A.

If you want a self-improvement checklist of things to work upon, you will not find a much better list than this one.

On this basis, would that excellent pistol shooting Dirty Harry have got a gold medal?  

I don't think so...at the very least because he wasn't too "coachable", or open to learning.  There are a couple of other attributes that he didn't share with the Olympians either, and we can't overlook his tendency to adopt a cynical "me versus the world" attitude combined with a mindset of "my way is the only way, and winning is everything".  Brute force as a method of problem solving also has its limitations too I guess.

What led me down this line of thought in recent days is the realisation that there are more business owners like Dirty Harry than there are business people thinking and behaving like Olympians.

Champions challenge themselves, and are continually focused on incremental improvement, open to new ideas and learning, and reinforce all they learn with sheer hard work.  

Any professional advisers or professional service firms looking to develop or just get business ideas and inspiration should think about adopting the mindset of an Olympian rather than Dirty Harry. 

You don't have to actually get a gold medal or be first in the world to be a champion.  You only have to have seen Lauren immediately after NOT winning a medal to realise that.

 http://www.3news.co.nz/No-medal-but-still-glory-for-record-breaking-Boyle/tabid/1706/articleID/264158/Default.aspx


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Will you marry me?

 by Tony Vidler.

I have no idea what the actual statistics would be, but I am willing to wager that the success rate of popping the question "will you marry me?" onto a prospective partner who you have not yet dated is probably pretty low.  

If you've dated for a bit, the odds get a bit better, though only marginally so.  If you've been engaged for a while and everyone knows what the end game is, then the odds are pretty good that you will get a "yes" to "will you marry me?".

How does this apply to financial advice?  Well...the biggest problem with financial adviser marketing is the tendency to pop the "will you marry me" question to people who haven't decided yet whether they want to spend a Saturday night with you. 

This lies at the heart of dealing with a common adviser question: "How can I make my marketing more effective?"

Before answering this question though it is important to understand a more fundamental question: What is the difference between marketing and selling?

Many advisers seem to think that these are one and the same thing.  Or, if pressed a little further, "marketing" is often confused with "advertising".   Marketing does include advertising... as it also includes having a clear value proposition, understanding the target market, the branding of the individual and the branding of the business entity, and a number of other things.

Thinking bigger picture though; marketing is really about creating opportunities to gain a client or some new business.  Selling is the process of converting that opportunity into an actual piece of business that your accountant can see.

To answer the question posed at the outset then, one has to understand that while there may be many components that go into creating really effective marketing, the underlying question that the adviser is really asking is "how can I create more opportunities to engage with people who would be willing to take the actions I would recommend"?

The part that really matters in this underlying question is "opportunities to engage with people".  THAT is the piece that you must concentrate upon to create "more effective" marketing.  This revelation is the point where advisers often say "aha, I get it" and their marketing efforts lift as they begin to focus upon creating new opportunities to generate future new business.  It makes sense to them that if they are able to attract attention, and engage with people, then they begin to establish a relationship of trust. Surely having done this the prospective client will take my advice and work with me?

It is at this point though that the bulk of such marketing efforts fall down in a heap.

The reason?  Lack of patience and understanding of the engagement process.  It's akin to having a couple of Saturday night dates and then wondering why the dream date doesn't want to marry you yet.  A lot of adviser businesses at this point are creating a lot of Saturday night dates....but there's no follow through.  It's just lifting the initial activity level really.

Engagement (in this business sense) is really about inter-acting with people on a regular basis in a way that they feel comfortable with until they decide they want to be with you.  Your marketing purpose is to get, and then hold, their attention and build their level of interest in what you have to offer in the way of valuable advice and solutions.  At some point in the engagement process you - or more likely some other event unrelated to your marketing and positioning - will trigger "desire" on their part to act.

That is when the marketing process is finished, and selling begins.  Although, if your marketing and engagement process is done well, the reality is that there is very little selling involved. 

The necessary level of trust and credibility in you as the right adviser has already been established.  The rest is process and technical competency being applied to the clients' need.  

The reality for a financial adviser business though is that engagement is forever.  The actual marriage part - your client buying you or your solution at some point - is actually just a moment in time.  It is a purchase. A transaction.  A fait accompli....if the engagement was a fulfilling one.

Engagement with clients, for the successful advice business, is long term.  Once you have them as clients, then the engagement and ongoing interaction becomes even more important, as they can add significant value to your business if you can move them from supporting you to the point where they are advocates for your business.

To make your marketing more effective - to get better results for your business - stop asking the marriage question.  It's not about the big moment and the big "sale".  Build systems and processes to engage people in a way they feel comfortable with, and share information and insights, and help them help themselves.....and they will want to take it further!

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Financial Markets Authority get it right

 by Tony Vidler.

The Financial Markets Authority (FMA) just gave every NZ adviser a happier Christmas with an excellent piece of guidance to the entire financial services industry.  Give them a bow, and throw a bouquet - they just got a big deal very right.

The industry has been seeking guidance on a number of issues since the advent of new regulations, which came into effect July 2011.  The main piece of legislation governing advice is the Financial Advisers Act, supported by the Code of Professional Conduct ("The Code").  Both are largely "principles" based, as opposed to being overly prescriptive and full of "thou shalts" and "shalt nots".  A laudable and eminently pragmatic approach to creating lasting legislation generally - though it tends to get a bit awkward to apply in its early stages.  The key problem is the very people it applies to are initially left to try and interpret how a principle works and what the regulators or judiciary might think it means somewhere in the future.

In time, a principles based regime tends to be more robust and better able to cope with an evolving society.  On one of the more problematic areas for all market participants is understanding how a theoretical principle applies in the real world however.  Principles don't always translate easily into the day to day actions of human beings, continually changing their minds or wanting things done, like, yesterday.  But theory is grand.  In the theoretical world bumble bees cannot fly.  But they do.  So much for theory.

So today the FMA issued a Guidance Note on the difficult issue of "analysis before recommendation".  First big thumbs up is for issuing a well laid out and very clear guidance note.  The second - and way more important big thumbs up - is for the approach taken in interpreting the law and the Code.

It is practical.  It recognises how the industry actually works in interacting with clients.  It recognises that it is about agreeing to what the client wants.  It places responsibility fairly where it should be when external professionals take on part of the work in research. In fact on this point, it is more reasonable than anyone expected.

It is a great piece of work.  Incidentally, as an industry we have been quick to criticize the regulators.  As an industry we should be equally quick to congratulate them on a very useful and timely piece of work that indicates they have been paying attention and understand (at least some) of the issues advisers and industry are grappling with.

Let's cut to the chase on this particular piece though.  Code standard 6 says that the AFA must "make recommendations only in relation to financial products that have been analysed by the AFA to a level that provides a reasonable basis for any such recommendation...."  Collectively we have tried to determine the extent of analysis expected, and what evidence would constitute a "reasonable basis".  We have been guided by rulings in foreign jurisdictions, and drawn conclusions from those.

A school of thought had evolved - and been blatantly promoted for commercial gain in some sections - that this meant the AFA must exhaustively analyse every possible product choice in the universe that might be a viable solution for clients.  A ridiculous interpretation - it was never going to be applied that way.  That would logically lead to paralysis through analysis.  Nobody would ever conclusively finish their research and clients would have died of impoverished old age waiting for the research and analysis to determine suitability.  As silly as this line of thought was, it was gathering momentum in the absence of better information.

The more rational industry commentators focused on elements such as a product needing to be "suitable" or "fit for purpose".  This is effectively precisely where the FMA have drawn the appropriate line.  

Better yet, they have recognised that what is suitable for one client is dependent upon the scope of service agreed to with the client, and the nature of the adviser-client relationship (para 17; Guidance Note).  This is a really significant point.  It provides context around what is considered to be reasonable work by the adviser, in each individual client situation.

They go on and provide some certainty regarding the positioning of independent research, or legal documents provided by issuers.  The responsibility for the veracity of the information provided by those documents sits firmly with the issuers, precisely as it should.  They have pragmatically considered the situation for dedicated adviser forces - those in dealer groups or aligned distribution channels - and determined that it is actually reasonable for the adviser to rely upon the technical assessment done by other and more suitably qualified professionals specialising in that work.  Hooray on that point.

FMA:  you have hit a home run here in my view.  Do more of it.  Provide more Guidance Notes on how you think the law should be interpreted and applied.  Especially do more if you maintain this pragmatic and thoughtful approach to making it work to promote and develope fair markets that engender confidence by all stakeholders.

Advisers:  Read this guidance, and digest it.  It is very helpful and should provide assurance that if you do diligently do research and know your products, and use them in a manner that is fit for purpose and suitable for your clients, then you have little to fear.  You can legitimately rely upon other professionals assessments of products, and you can trust that the information put into legal documents by issuers is accurate.  This frees the adviser up to actually focus on being excellent in their field of knowledge and focus upon the client.

That will do me for a positive message at the end of a challenging year, and hopefully set the tone for 2012 and beyond.

Merry Christmas one and all.

(The link to the full FMA Guidance Note is

http://www.fma.govt.nz/media/511496/seccomdocs-_191806-v2-fma_guidance_code_standard_6_d__2_.pdf


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Alphabet Soup is Unhealthy

 by Tony Vidler.

One of the intriguing little debates happening in NZ financial services in recent times has been the use of new (different) acronyms for different types of advisers. Observing the often heated debate got me thinking: who cares?

The answer actually surprised me:  I do.  I care.  

The incessant bickering, the unnecessary market noise it creates, the head-shaking that I am sure these types of arguments provoke in the non-adviser parts of the industry, the distraction and amount of wasted energy and resource that gets pushed into little guerrilla wars...I care because all of these things limit our chances of success, and are a barrier to creating a better piece of New Zealand.

We have plenty to use in the way of acronyms now.  AFA, FSP, RFA, CFP, CLU, IFA, PAA, LBA, NZMBA, NCFS, QFE, NZQA....the list could go on and on....and a vast combination of them can be thrown at the market by the financial services sector simultaneously.  It is an alphabet soup that is decidedly unhealthy. 

It is confusing consumers (well only those that are even interested enough to try and make any sense of it all), and it is clearly confusing advisers.  Like it or not, the more we confuse consumers then the less likely they are to trust and use us.  It creates an unnecessary barrier to achieving confidence.  There are a couple of things that we can do as an industry though to try and take down some of those barriers.

The first is the domain of the regulators mostly - but as advisers we have to take some responsibility too.  That is around the use of the licensing terms. As it stands under the newly regulated NZ environment we have broadly two types of advisers (in the most general terms), one being an Authorised Financial Adviser (referred to by all and sundry as an AFA), and the other is a registered, but not authorised, financial services provider.  That second main type of adviser is a bit of a mouthful to describe isn't it?


The authorities have decreed that anyone wishing to provide advice on complex and potentially dangerous financial products such as most investments, must be an AFA in order to do so. That person is individually authorised, and unable to hide behind the protection of a limited liability trading entity - so they carry full personal responsibility they cannot contract out of for any advice they give. There is a fairly basic education and fit & proper person assessment prior to being authorised, which is a decent starting point for an industry evolving and raising its standards. To keep it in perspective though the entrance education for this is about trade certificate level. Challenging perhaps, and definitely providing technical learning, which is good. The advisers going through that process are undoubtedly more competent for having done so. At the end of it they have a licence to operate in business as a financial adviser, dealing with securities and more complex products.

Where do the non-AFA advisers fit in? Heck, what do we even call them? The industry has settled on calling them "RFA's", which is logical I guess.  After all, they are registered and they are financial advisers.  Ergo:  Registered Financial Adviser!  To date nobody seems to have really cared about that label (including me), and there has certainly been no attempt I am aware of for any party to try and correct advisers to use something else that is legally correct, like Registered Financial Services Provider perhaps.


As an aside, and just so there is no concept that I have any issue with RFA's as opposed to AFA's (I most certainly don't), I observe that I have witnessed more confusion being created in AFA land - but of a different sort.  Disclosure statements and marketing material from newly minted AFA's referring to the authorisation as an educational qualification - which it isn't. To obtain it you have to do some education, but the licensing status is not an educational qualification in itself.  Some refer to it as an "award" - which it most definitely isn't. It is a legal consent to go about your business.  I have even see one adviser refer to their licensing status in their marketing material as one of their "Industry Honours".  THAT is mighty close to being misleading, and is heading for trouble with some authorities somewhere down the track. 

Undoubtedly there are AFA's seeking to use their authorisation in marketing their expertise and standing, and rightly so. They have engaged in additional education and taken higher standard of care obligations willingly, and are able to provide advice in a wider (and arguably more difficult) range of areas.  It is absolutely appropriate that they advertise this if they feel it will provide an edge to confused consumers, or accurately describe the areas of advice they are permitted to provide.

We need to get it clear though in the consumers mind, and be consistent in our own use of the terms.  The long anticipated consumer awareness campaign around the new regulations needs to be educational - and accurately describe both main types of adviser, not just focus on one particular sort. 

The other main area that is entirely within the hands of the advice side of the industry is the proliferation of industry associations and their accompanying acronyms.  I confess that I have a few letters myself - and have used them in a cavalier fashion (guilty!) - but I'll throw them all away and stop using them if we can get everybody else to throw away their letters too.  Beyond personal qualifications, designation and licensing terms there is further confusion over "professional bodies".  I have long contended that there is a place for all of the current industry organizations in the market - though not necessarily all aiming at, or dealing with, consumers.  For instance, there are some groups and organizations where the target market (their consumer) is clearly only the financial adviser and they exist to provide benefits to the adviser business.  An absolutely commendable objective, and one which has commercial benefit it would seem, so you'd conclude there is a legitimate reason for being and a bright future on that basis.

If there was a single area though where there is absolutely no room for competition or confusion it is in the area of "professional standards".  Standards are either professional or they are not.  They are not a competitive point of difference. That is not to say that standards are static and never evolve, as they most certainly do.  However what is a professional standard in the eyes of the end-users at any given moment in the evolution of a profession should be consistent throughout the entire sector.  In this respect the responsibility sits mainly with advisers.

There are some 2,500 advisers out there in NZ - RFA's & AFA's alike - who voluntarily committed to higher standards by joining some type of industry body.  There are perhaps another 5,000 though who belong to nothing and are not perhaps working to the same standards.  It is only "perhaps", as I am sure there will be a very healthy proportion of those 5,000 who actually do operate the same way as those in the industry organizations, and who do care about being seen as professionals, and do care about their reputations and standing.  The association proliferation is a barrier to those advisers belonging to anyone though.

My hope is that 2012 is the year where a single professional body can begin to evolve for the NZ financial advisers.  Whatever it is called, however it looks, whoever runs it are all fairly unimportant to begin with.  The past differences do not matter, and nor do individual ego's.  What does matter is that we begin to gain regulatory and consumer confidence by working cooperatively to reduce confusion, committing to common professional standards, and being seen to stand for something positive.  Let's do away with as much of the alphabet soup as we can.  It is unhealthy stuff.


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