Much has been written about the role of a Financial Advisor. ASIC have suggested that:
Consumers who seek financial advice expect their advisor will act in their best interests and that the advice provided will leave them in a better position. (RG 175.244)
When assessing whether an advice provider has complied with the best interest duty [consideration will be given to] whether a reasonable advice provider would believe that the client is likely to be in a better position if the client follows the advice. RG 175.245)
But what does this mean in practice?
For the advisor, the concept of “better position” could easily be defined as understanding the client’s existing financial position as well as the goals they are seeking to achieve over a specified time frame. If the end financial position has improved or the financial objectives have been met, then the argument could be put that the client is “better off”.
But for the client, it is so much more than this and is likely to include the means through which the financial objectives are achieved. These ae often intangible and might include:
i. the ability to explain the advice in simple terms;
ii. the availability of the advisor to answer questions;
iii. transparency and timeliness in providing information – particularly if mistakes or errors occur;
iv. the willingness and ability to address mistakes or errors;
v. the response to any changes in the expected outcomes;
vi. the development of confidence in the advisor over time;
vii. how often the interaction between client and advisor occurs;
viii. the fees charged for the advice;
We consider these elements as an important component of a client’s Risk Profile.
Financial markets, particularly currency markets, can be complex and highly volatile. So, it becomes even more important that the journey towards the successful attainment of the financial objectives is undertaken in such a way that each client does not believe they are exposed to greater levels of risk as part of the process. In our experience this requires a close collaboration between client and advisor and a time commitment from each such that the best possible outcome for both the client and advisor can be achieved.
It is the advisor’s role to bring technical expertise to the relationship as well as to act as a guide to navigate through the constantly changing currency environment. This will involve regular interaction with the client to ensure understanding of products, markets and most importantly the impact that these have on the client’s interim and expected outcomes.
It is the client’s role to provide ongoing and regular updates with regard to business activities, to ask questions if products or market impacts are unclear and to inform the advisor if any part of the advisory process is causing concern. Only then can it be addressed.
Over time, this type of collaboration will build confidence and trust in the relationship for both advisor and client giving both a greater understanding of their role and contribution in achieving the client’s financial objectives.