Questions with Guided Answers by Beverley Houterman

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Chapter 2: Ethics and Compliance
1
What is the difference for clients between opt-in and opt-out?
In opt-in, the client has to actively affirm that the adviser can continue to take ongoing
fees from their investments. If they fail to exert their opt-in, the adviser will not continue
to receive their fees and the costs of the investment should lower for the client as the
advisers fees are an add-on. If the situation was opt-out, if the client did not exercise
their right, than the adviser would continue to receive the fees, even if they did no
further work for the client.
2
How will the elimination of commission-based remuneration for financial planners
impact clients who have low income levels and small amounts of money to
invest?
Clients with limited financial resources may not be able to pay costs of advice
statements where they are charged for these statements upfront. With small amounts
of money to invest, the funds under management fee will not pay the financial adviser
sufficient to offer the advice therefore these clients are unlikely to be provided
financial advice.
3
Has the new FOFA legislation clarified the roles of licensees and advisers?
No, there is no change the licensee is still required to ensure advisers have
appropriate education and ongoing training, meet all regulatory and compliance
requirements and provide appropriate advice to their clients. Advisers now have a
statutory duty to clients to put the clients best interest first, which should be backed up
by the licensee. However, advisers seem to be under more scrutiny than before and
are often pulled up by ASIC for disciplinary actions.

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4
The data-collection process and the data-collection form are carefully scrutinised
by ASIC when it does licensee audits. Why is ASIC so concerned with the datacollection process?
The data collection process is the way a financial adviser can know their client. It
identifies the goals, resources, and level of risk a client is willing to take to achieve
those goals. Without this information, it is impossible for the financial adviser to provide
appropriate advice or meet the requirement to have a basis for their advice. Where this
process has not been done, or has been done to a limited extent, the adviser, and thus
the licensee, is in breach of their obligations under the Corporations Act.
5
Why is the provision of appropriate retirement advice so important?
When a client is working and earning money, losses can be made up over time and
strategies can generally be changed. However, as people approach retirement, they
have less opportunity to make changes and less time to create the wealth they need to
fund their retirement. Once a client makes decisions regarding their retirement income,
they may be locked into these decisions. Also, with a number of strategies available,
and the fact that some of these strategies are complex, working through the advice
process can be difficult, and significant work must be done.
6
Most licensees have services standards that their financial advisers are expected
to meet. What are the implications of the financial advisers expanding on these
services standards and then not meeting the higher standards?
Financial advisers must meet their obligations under statutory law, which now includes
meeting the best interest of the client. If the adviser enters into a client service
agreement, this may act as a contractual obligation, which the adviser must meet. As
the licensee has not entered into this extended contractual agreement, the adviser may
be personally responsible for any loss due to breaches of the extended services.
7
What conflicts can arise for financial advisers where they have a client service
agreement in place, they owe their client a duty of care (or at least have to act in
the clients best interest) and they are under either an employment contract or
some other contractual agreement with the licensee?
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Continuing on from the previous question, the financial adviser can be conflicted as they
are under obligations to their employer which may not be in line with the clients best
interest, and may require the adviser to spend time increasing their client base instead
of meeting client service agreements or spending the necessary time with clients.
8
Why is ASIC concerned that financial advisers complete thorough risk-tolerance
analysis and longevity assessment?
The two key issues that have arisen in the last 10 years are clients being put into
investments which were outside of their risk tolerance and the need for people to fund
longer retirement years. Without doing a thorough risk tolerance (or ignoring one if it is
done) or trying to circumvent the outcomes by using inaccurate names to identify
products, clients will continue to be put into higher-risk products which mean
unexpected losses for clients. By not understanding how long they have to save for,
clients may not commit to a solid savings campaign.

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