Financial planning advice review audit questions A list of financial planning advice audit questions, guidance and remediation

Transcription

1 Financial planning advice review audit questions A list of financial planning advice audit questions, guidance and remediation Financial Planning Advice Review Audit Question v.2 2 Dec

2 Table of contents Table of contents...2 Introduction...3 FSG...4 Initial advice fees...5 Fact find...6 Working papers File notes Accredited to advise Advice document Strategy and Product Disclaimers and disclosures Implementation Time critical No Advice/Client Directed Transactions MDA Service Ongoing advice Fee Disclosure Statements Opt-In Notification Miscellaneous Financial Planning Advice Review Audit Question v.2 2 Dec

3 Introduction This document explains each of the audit questions in detail relating to Futuro Financial Services Pty Ltd (Futuro). On each page you will see various sections. Each issue has been allocated a risk rating based on the potential risk to client and / or Licensee. The Legislation (if applicable) and Futuro Policy Reference for each question is also referenced. This is intended so that the adviser or auditor can refer to relevant information included in the guide. The guide section of each page is a snapshot for advisers and auditors to understand what the audit question is testing. The information is taken from Licensee Policy References. If systemic issues are identified during an audit additional files may need to be checked. When any policy, obligation or standard is altered, this document is updated. This document is not a substitute for policies and standards. Financial Planning Advice Review Audit Question v.2 2 Dec

4 FSG Question 1 FSG/ Adviser Bio (AB) Was a compliant FSG and Adviser Bio provided to the client before the provision of advice? Legislation s941a, 941B and 941D(1) Corporations Act, Regulatory Guide Futuro Policy reference Licensee requirement (what to look for and why we Provide a FSG and Adviser Bio to the client before giving advice Each client must be provided with a current FSG/AB at the first opportunity including client directed advice and time critical scenarios. If the FSG/AB has changed since the last version was provided, a new FSG/AB must be provided. The FSG/AB must be 1. Current 2. Meet Licensee requirements and 3. Use the Licensee template. The client sign-off page within the fact find contains a field for the adviser to record that: The client was provided with an FSG/AB; and The version number of the FSG/AB. This version number should be matched with the Licensee s FSG register to ensure that the version number and date match. If the adviser has not provided a current FSG or AB to the client this would be considered material If the adviser has provided a previous version FSG or AB and it s not significantly different from the current version, this would be considered immaterial If it is apparent that a number of incorrect FSG/AB s have been provided (out of date versions); conduct a further random sample of 3 files to determine if the issue is not systemic. Failure to provide FSG/AB at the first opportunity Providing unauthorised FSG/AB Providing incorrect FSG/AB version, for example using another Licensee template Send client a current version of the FSG/AB immediately Record both the version number and the date it was sent as a file note Financial Planning Advice Review Audit Question v.2 2 Dec

5 Initial advice fees Question 2 Initial advice fees Is there evidence that the client agreed to the initial cost of advice? Legislation Nil Futuro Policy reference Advice Practice Policy - Ensure the client signs a relevant document for the initial cost of the advice Prior to providing advice services to clients, it is important that both the client and adviser agree on the advice/services to be provided Clients must be able to understand the advice fees they are paying, agree to the fee for advice and fees must be aligned to a service. It must be completed at the conclusion of the fact finding meeting and before the preparation of a Statement of Advice. (what to look for and why we The fees can be recorded in one of the following documents: Initial Advice Agreement Letter of Engagement Advice Fee Invoice; or Service Agreement These agreements/invoices must detail the scope of advice and/or services and the cost of initial advice. The form/invoice must be signed if an advice fee is to be charged as the client gives their express authority for the adviser to proceed with the preparation of the SOA. This initial advice fee must be consistent with the charges outlined in the adviser s Adviser Bio. If the adviser has not evidenced a signed document that denotes the initial cost of the advice which outlines the scope of the advice/service, this would be considered material If it is apparent that no documents are being used to record the initial cost of advice; conduct a further random sample of 3 files to determine if the issue is not isolated. The initial cost of advice relevant document has not been completed and signed Contact client to obtain client s agreement Record both the full details of all client contact regarding this issue as a file note Financial Planning Advice Review Audit Question v.2 2 Dec

6 Fact find Question 3 Fact find completion Does the client file contain a fact find relating to the advice? High Legislation s961b(2) Corporations Act, Regulatory Guide Futuro Policy reference Advice Practice Policy - (what to look for and why we Complete a fact find with enough relevant information to provide advice This question is used to identify whether or not a fact find exists and contains information relevant to the advice. Futuro requires advisers to collect relevant client information and record this in the Licensee approved Fact Find. Structured file notes are also acceptable providing they are only supporting the information contained within the fact find. If there is no fact find, there may not be justification for the advice. File notes may include s containing information that help satisfy the best interests requirements. If the client is seeking advice for a specific goal or objective, the adviser is required to collect the relevant information, as it relates to the area(s) of advice being addressed. Futuro s mandates a requirement for the recording of asset, liabilities, income and expenses. If the adviser has not gathered sufficient information to substantiate best interests this would be considered material. If this issue is identified in more than one file, check a further 5 files to gauge if this issue is systemic. Requirement to record client s relevant objectives, financial situation and needs Failure to complete a Fact Find or adequate file notes to obtain relevant information to provide advice Contact client and complete fact find/file notes Retain the completed and signed/dated copy on file Financial Planning Advice Review Audit Question v.2 2 Dec

7 Question 4 Raw client needs, goals and objectives Have the client s initial reasons for seeking advice and goals and objectives been recorded in the fact find? High Legislation s961b(2) Corporations Act, Regulatory Guide Futuro Policy reference Advice Practice Policy - (what to look for and why we Record the reasons why the client came to see you and the client s goals and objectives This question is used to identify whether or not raw clients needs are captured and goals and objectives are recorded within the fact find. Advisers must record the reason(s) the client came to see them. This is the starting point for getting to know the client and their circumstances. The client's reasons for seeking advice must be captured in the client's words in the Fact Find as accurately as possible. Goals should be stated and objectives should be S.M.A.R.T. The aim is to arrive at a definitive set of goals with relevant objectives to the planned advice. Goals must be prioritised where the advice isn't going to address them all. If the adviser has not recorded the reason why the client came in or any goals and objectives to substantiate best interests this would be considered material. If this issue is identified in more than one file, check a further 5 files to gauge if this issue is systemic. Requirement to record client s instructions and refined goals Failure to identify the client needs according to the client s instructions. Failure to record the client s goals and objectives Contact client and complete fact find with missing information Retain the completed and signed/dated copy on file Financial Planning Advice Review Audit Question v.2 2 Dec

8 Question 5 Scope Has an appropriate scope of advice been agreed/excluded and recorded? Legislation s961b(2) Corporations Act, Regulatory Guide Futuro Policy reference Advice Practice Policy - Record the advice areas to be included for the advice and if some advice areas have been excluded, record the risks of excluding within the fact find? The fact find must demonstrate a list of what advice areas will be included/excluded in the advice and what are (if any) the risks of excluding. The scope must be a logical extension from the client objectives. The scope of advice refers to the particular advice areas that you and the client agree will be addressed at that point of time. The scope of advice discussion will cover: The areas in which you will provide advice and those that will be deferred for another time The areas the client doesn t want advice on Consideration of whether or not you can provide the client with advice. For example, the client may want advice on SMSF s, but you are not accredited in this area. If the adviser has not recorded any relevant advice areas or the risks excluding applicable advice areas in the fact find this would be considered material. If this issue is identified in more than one file, check a further 3 files to gauge if this issue is systemic. Requirement to identify the subject matter of the advice Failure to adequately document the agreed/excluded scope of advice Contact the client to confirm included/excluded advice areas Update the file with file notes to confirm what is not included in the advice and the risks of excluding Financial Planning Advice Review Audit Question v.2 2 Dec

9 Question 6 Personal circumstances Have the client s relevant personal circumstances been recorded? Legislation Regulatory Guide Futuro Policy reference Advice Practice Policy - Collect enough relevant information about the client to provide advice Collecting personal and financial information from the client gives the adviser the best chance of developing a strategy that will meet the client's goals and objectives. This information includes contact and personal details; employment and salary details; net wealth; assets & liabilities; income & expenses, family, cash flow, insurances etc. that may be considered relevant in the provision of advice. The information gathered should be relevant to both the client s goals and objectives and the agreed scope of advice. For example, retirement planning details would be irrelevant for insurance advice but relevant for super advice. Efforts must be made to ensure the information collected is both accurate and complete. Where information is missing, a warning can be provided to the client about the risk of not providing all of the necessary information. Recording the information clearly helps advisers meet regulatory and Licensee requirements. It also ensures the Adviser has robust information to base their advice upon. If the adviser has not recorded enough relevant information that meets the scope of advice this would be considered material. If the adviser has recorded the reason why the client came in but not all of the goals and objectives are relevant to this raw client need this would be considered immaterial. If this issue is identified in more than one file, check a further 5 files to gauge if this issue is systemic. Requirement to identify and record the client s relevant circumstances Failure to properly record the client relevant personal and financial circumstances Failures to match the client s relevant personal and financial circumstances to the client s goals and objectives Failures to match the client s relevant personal and financial circumstances to the areas of advice Contact client to collect required information and record this as a file note within the client s file Evaluate the appropriateness of the original advice and if there is a significant change to the appropriateness of the advice provide a review advice document to the client Financial Planning Advice Review Audit Question v.2 2 Dec

10 Question 7 Existing products Does the documentation demonstrate that the adviser has thoroughly investigated the client s existing products when advice relates to those products? Legislation s916b(2), s961d Corporations Act, Regulatory Guide Futuro Policy reference Advice Practice Policy - Ensure you have collected enough information concerning the client s existing products A review of a client's existing products must include the features, benefits and costs. Futuro has produced mandatory Working Papers for recording product information. This includes alternative strategy/product considerations and why alternatives were not recommended. Evidence of a thorough investigation would require completion of product comparison checklists. These can be added to the fact find or produced separately. Advisers may also have additional information on file that they have sought from requests for information, PDS', s, faxes, website or call centre discussions. Advisers should record the source of the information where it is not otherwise known from the file. For example, details of telephone conversations with a call centre staff member, including name of Customer Service Officer and time of call. The date and version of applicable PDS(s) should also be recorded. The information collected must be recorded in the client's file. If advice does not relate to the existing products this detail becomes irrelevant. If the adviser has not collected any information, whether personally written or client produced documents concerning the client s existing products this would be considered material. If this issue is identified in more than one file, check a further 3 files to gauge if this issue is systemic. Requirement to document a reasonable investigation of the client s existing products Failure to record an investigation into the client s existing products, including enquiries into the features, benefits and costs Complete appropriate research and analysis of the client s existing products Record outcomes of the research in the client file Evaluate the appropriateness of the advice and if required contact the client to provide a review advice document Financial Planning Advice Review Audit Question v.2 2 Dec

11 Question 8 Money profile Has the client s money/investor profile/investment strategy been appropriately identified in the Money Profile/relevant fact find High Legislation Regulatory Guide Futuro Policy reference Investment Research Policy Risk Profiling and Asset Allocation Document what the client s money/investment profile and/or trustee s investment strategy in the relevant document Where advice involving investments is being provided, an investor profile for the client must be tested and identified. A risk profile assessment ensures the adviser has a basis for the recommended strategic asset allocation strategy. The outcome also needs to align to one of Futuro s defined risk profiles. Documenting the agreed outcomes, with the client s signature as acknowledgment, creates evidence of the completed task. This information is used to help tailor investments for the client. At a basic level this includes superannuation. At a more complex level this would help to justify the suitability for gearing. Where the adviser has more than one client, e.g. husband and wife, they must undertake an investor profiling assessment for each client. Where they have different risk profiles, if strategies or investments will be in a separate account, then each individual's risk tolerance should be used to make recommendations. Where the strategy or investment will be made in joint names, the adviser will have to carefully negotiate and document the joint investor profile of the strategy or investment should be in agreement with the clients. Any variations to the investor profile need to be clearly documented If the adviser has not tested and identified to the client(s) investor profile/investment strategy this would be considered material. If this issue is identified in more than one file, check a further 5 files to gauge if this issue is systemic. Requirement to identify the client s money/investor profile and/or investment strategy in the relevant document Failure to record the client s money/investor profile or file notes do not discuss or detail the client s investor profile Failure to record the SMSF trustee s Investment Strategy The client s investment strategy (risk profile) has not been signed off Complete a risk tolerance assessment with the client Record the reasons for selecting the money/investor profile and/or ensure trustees minute the resolution of the Investment Strategy and if required provide a review advice document and make any investment alterations Financial Planning Advice Review Audit Question v.2 2 Dec

12 Question 9 Client acknowledgements Have the relevant acknowledgements been completed, signed and dated by the client? High Legislation Licensee Requirement Futuro Policy reference Advice Practice Policy - Ensure the client completes all relevant acknowledgements and signs the relevant fact find and/or money profile The client acknowledgment in the Fact Find or the client acknowledgment form is used to ensure that the client is aware of their duty of care and how their privacy is protected. It also records acknowledgment of: The provision of the FSG/Adviser Bio The provision of privacy collection Retention of client s TFN - retention of client s sensitive information Ability to communicate via /mobile phone text messaging Potential sharing of information with 3rd parties. This is also where the client acknowledges the accuracy of data collected. If the client has not signed the fact/money profile this would be considered material. If this issue is identified in more than one file, contact the Futuro Compliance Manager Client acknowledgements have not been completed, signed or dated in the fact find as required Obtain client sign-off as a matter of priority Financial Planning Advice Review Audit Question v.2 2 Dec

13 Working papers Question 10 Alternatives Is there evidence that alternative products and/or strategies were thoroughly assessed? Legislation s961b(2) Corporations Act, Regulatory Guide Futuro Policy reference Advice Practice Policy - Complete Working Papers and obtain relevant information to ensure you have thoroughly researched alternative products and strategies An alternative strategy or product is one that could also meet the client s needs and objectives, but has been discounted in favour of the recommended strategy or product. An adviser must consider alternatives where a recommendation to obtain or hold a strategy or product (including platforms, industry funds, underlying investments and group or personal insurance policies) form part of the advice. There should be at least one alternative for each strategy or product, or at least two alternatives where complex advice is provided. Where more than the minimum number of alternative strategies/products is identified as being viable, all of the considerations must be documented. Advisers are required to: Use their professional judgement to identify strategies and/or products that could achieve the client s objectives. Consider whether the client can achieve their goals with their current resources Self-assess whether they possess the relevant expertise to discount the strategy or product being considered. Consider the ability of each suitable strategy and product to reasonably address the client s objectives and identify which option is the most suitable, based on the information collected. Document the strategies, products or alternative structures that were considered and why they were rejected. If the adviser has not completed the Working Papers or no information can be located on the client file to substantiate the client s existing or proposed products this would be considered material. If this issue is identified in more than two files, check a further 3 files to gauge if this issue is systemic. Requirement to consider and document alternative products and strategies There should be one alternative for each strategy and product for all advice Complete research and analysis of alternative products and strategies within the Working Papers Record outcomes of research in the client file Evaluate appropriateness of the advice in light of the research and if required provide a review advice document Financial Planning Advice Review Audit Question v.2 2 Dec

14 File notes Question 11 File notes Is there evidence that appropriate file notes/diary notes have been kept? Legislation Nil Futuro Policy reference Licensee Requirement Licensee Policy Client File Management Ensure you record all client exchanges/actions from the start to the end of the advice process File notes/ diary notes must be used to record: All client contacts or attempted contact, Discussions with client, the client s solicitor or accountant, any internal administration areas Any other relevant discussions you have with 3 rd parties about the client Decisions made by the client and actions taken or agreed Discussions from reviews Evidence of file notes/diary notes/electronic conversations also demonstrates an appropriate record keeping behaviour and must be dated the same time as when the exchange occurs. File notes may also be retained to support why advice may be in a client's best interest or to record decisions made during discussions. File notes can be either paper or electronic. If the adviser has made no effort to record file notes throughout the advice process this would be considered material. If this issue is identified in more than one file, check a further 5 files to gauge if this issue is systemic. Requirement to keep appropriate file notes Failure to keep file notes in accordance with the Licensee guidelines Create files notes (dated now) that summarise your recollection of previous discussions and contact with the client Financial Planning Advice Review Audit Question v.2 2 Dec

15 Accredited to advise Question 12 Accredited to advise Is the adviser authorised/accredited to provide the advice High Legislation Best Interests Duty step 5 Futuro Policy reference Licensee Requirement - Adviser Authority Advice Practice Policy - Complete Working Papers and obtain relevant information to ensure you have thoroughly researched alternative products and strategies Advisers can only provide advice in areas within their scope of authority in conjunction with Licensee accreditation. Tools available to check include: Adviser Authority Adviser Bio Adviser must conduct a self-assessment to determine if they have the expertise to provide the advice required by the client. If the adviser doesn t have the relevant expertise they should refer the client to a suitable alternative adviser and not provide advice. Futuro has access to various accreditation courses to ensure advisers have appropriate knowledge in various specialised areas. If the adviser is not accredited to provide advice in that particular area this would be considered material. If this issue is identified in more than two files, contact the Futuro Compliance Manager. Advice without accreditation or acting out of scope of authority Advice without accreditation or acting out of scope of authority Cease engaging in relevant activities Obtain appropriate accreditation immediately Refer client to another suitably qualified AR until training is completed If amendments are required, the qualified adviser is to provide a revised advice document to the client Financial Planning Advice Review Audit Question v.2 2 Dec

16 Advice document Question 13 Advice documentation Was an appropriate advice document provided? High Legislation s946a Corporations Act Futuro Policy reference Licensee Requirement Advice Practice Policy - Ensure you produce an advice document when giving any advice When personal advice is provided to a retail client, it must be provided in writing. The type of advice document created and whether or not it needs to be provided to the client depends on whether the adviser is providing new, further or review advice. If the current advice is an extension of existing advice, the adviser must be able to produce a Statement of Advice (Incorporation by Reference) or Record of Advice (RoA). However, if the adviser proposes a new strategy or product, then a new SOA is required. If the required advice document is not on file, the remaining review of this file should cease until the reasons for the absence are established. Remaining advice questions will be scored N/A. An issue must be raised if it is discovered that the advice document was never produced. Similarly, an issue will be raised if the incorrect advice document is used. For example, a RoA instead of an SOA. If this issue is identified in more than two files, contact the Futuro Compliance Manager Obligation to provide an appropriate advice document Business placed without provision of an advice document RoA conditions for use are not met, and SoA should have been provided Produce advice document within a 5-day period and ensure the client/s signs the Authority to Proceed Financial Planning Advice Review Audit Question v.2 2 Dec

17 Question 14 Personal circumstances Have the client s relevant circumstances been fully included in the relevant advice document? Legislation s947b Corporation Act, Regulatory Guide Futuro Policy reference Advice Practice Policy - Ensure you include all of the information from the fact find to the relevant advice document The advice document must detail all of the client's information, relevant to the advice provided. The information can be incorporated by reference for SOA (IBR) and ROA s. This information should reflect that collected in the Fact Find. If it does not, score the question here and not in the Fact Find as the client has received the SoA. If the adviser has not incorporated all of the information contained in the fact find into the advice document this would be considered material. If this issue is identified in more than two files, check a further 3 files to gauge if this issue is systemic. Document client s current situation, relevant to the advice, as outlined in the Fact Find and file notes Contact the client to review personal circumstances and complete file notes accordingly Where required produce a review advice document. Obtain client s acknowledgement and keep it on file Financial Planning Advice Review Audit Question v.2 2 Dec

18 Question 15 Reasons for seeking advice, goals, objectives and scope of advice Have the client s reasons for seeking advice, goals, objectives and scope of advice been fully included in the relevant advice document? Legislation s916b Corporations Act, Regulatory Guide Futuro Policy reference Advice Practice Policy - Ensure you include all of the information from the fact find to the relevant advice document The advice document must accurately reflect the reasons for seeking advice, goals, objectives and scope of advice that were recorded in the Fact Find and agreed by the client. If there is no fact find/appropriate file note or adequate objectives records, this question must be answered on the merits of the advice document. The lack of adequate records is addressed in the earlier Fact Find questions. This area should also contain scoped out advice areas and the risks of not addressing any particular area of advice If the adviser has not incorporated all of the information contained in the fact find into the advice document or not outlined excluded advice areas and the risks associated with those excluded areas, this would be considered material. If this issue is identified in more than two files, check a further 3 files to gauge if this issue is systemic. Requirement to ensure the client s raw client needs, goals, objectives and scope of advice are consistent between the fact find, file notes and relevant advice document Review the fact find/ file notes and SOA to clarify discrepancy Contact the client to discuss discrepancy and confirm its significance Update file notes with outcome of discussion with client of if required produce a review advice document. Obtain client s acknowledgement and keep it on file Financial Planning Advice Review Audit Question v.2 2 Dec

19 Question 16 Warnings Have the client s money/investor profile/investment strategy fully included in the relevant advice document? Legislation s947b Corporation Act, Regulatory Guide Futuro Policy reference Investment Research Policy - Risk Profiling and Asset Allocations Ensure you include all of the information from the fact find to the relevant advice document The money/investor profile agreed to by the client as documented in the Fact Find/client file, must be consistent with the investor profile/investment strategy recommended in the advice document. If the adviser has not incorporated all of the information contained in the fact find into the advice document this would be considered material. If this issue is identified in more than two files, check a further 3 files to gauge if this issue is systemic. Requirement to ensure the client s investor profile is consistent between the fact find, file notes and advice document and meets licensee guidelines Determine why the investor profile is not consistent between the two documents If the client has agreed to change their investor profile after the initial assessment, obtain their acknowledgement of this change If the advice document contains the incorrect investor profile, provide a review advice document with the correct investor profile Evaluate the impact of the change to any investments that have the incorrect asset allocation. Implement necessary changes and ensure the client s situation is not impacted detrimentally Financial Planning Advice Review Audit Question v.2 2 Dec

20 Question 17 Warnings and disclaimers Does the advice document contain appropriate warnings? Legislation s961h Corporations Act, Regulatory Guide , Futuro Policy reference Advice Practice Policy - Ensure you outline any warnings if the client has not provided sufficient information in the fact find Where the advice is based on incomplete or inaccurate information advisers have an obligation to warn the client to meet step 3 of the BID Safe Harbour steps. To ensure advisers are adequately protected, it is a mandatory Futuro requirement to include the standard limited advice or incomplete information warning in every advice document, regardless of whether or not the adviser believes the client has provided you with all the information. If the adviser has not incorporated all of the information contained in the fact find into the advice document this would be considered material. If this issue is identified in more than two files, check a further 3 files to gauge if this issue is systemic. Requirement to ensure the client s raw client needs, goals, objectives and scope of advice are consistent between the fact find, file notes and relevant advice document Review the fact find/ file notes and SOA to clarify discrepancy Contact the client to discuss discrepancy and confirm its significance Update file notes with outcome of discussion with client of if required produce a review advice document. Obtain client s acknowledgement and keep it on file Financial Planning Advice Review Audit Question v.2 2 Dec

21 Question 18 Limitations and assumptions Does the advice outline any limitations or assumptions (if applicable)? Low Legislation s947c Corporations Act Futuro Policy reference Advice Practice Policy - Ensure that if any limitations to the advice exist or you have used assumptions in your modelling that these are disclosed If the client has advised on certain limitations of the advice, you will need to outline these limitations in the relevant advice documents If you are providing advice on complex strategies then it is assumed you will provide modelling, which may rely on assumptions. If you are using calculators as part of your advice it is important that all assumptions have been disclosed within the advice document If no limitations (if applicable) assumptions have been disclosed within the advice document this would be considered material. If this issue is identified in more than two files, check a further 3 files to gauge if this issue is systemic. Not detailing limitations or assumptions within advice documents Provide a review advice document with limitations and assumptions and provide to client Financial Planning Advice Review Audit Question v.2 2 Dec

22 Strategy and Product Question 19 Strategy and risks Does the advice document clearly explain the recommended strategy and the associate benefits and risks? Legislation Regulatory Guide Futuro Policy reference Advice Practice Policy - Investment Research Policy - Modelling & Projections Ensure you explain the strategy clearly in the advice document and detail supporting information about the benefits and risks Advice documents must be written in a clear and concise manner to give the client the best chance of understanding: The recommended strategy, The benefits they can expect, and The potential risks. Clear understanding allows an informed decision. If the adviser has not clearly identified the strategy or provided sufficient supporting detail concerning the benefits and risks this would be considered material. If this issue is identified in more than two files, check a further 3 files to gauge if this issue is systemic. Requirement to ensure the advice document clearly articulates the recommended strategy and associated risks and benefits Take into account tax considerations, cash flow and income/growth projections, and any Centrelink implications Contact the client to confirm the client understands the recommendations Client to be provided with missing information in a review advice document Update file notes to document the discussion and when review advice document provided to client If advice originally provided was inappropriate and could lead to loss, contact Futuro Compliance Manager Financial Planning Advice Review Audit Question v.2 2 Dec

23 Question 20 Licensee policies/ guidelines Do the recommended strategies meet Futuro s policies/guidelines? Legislation Licensee Requirement Futuro Policy reference All relevant Futuro Licensee, Advice Practice and Investment Research policies and guidelines Ensure the advice follows any requirements under Futuro s policies/guidelines Specific Licensee requirements apply to the following strategies: Gearing Debt strategies (including gearing, reverse mortgages, and general debt advice) Direct share/equities advice Direct property SMSF advice Limited resource borrowing arrangements Guaranteed products (including North) Aged care Structured products Advice within these areas must follow the licensee guidelines. Refer to the Licensee policies/guidelines for specific requirements. Advisers can request approval to go outside the Licensee guidelines. All approvals should be recorded by an from the Licensee. If the adviser has not followed specific policies/guidelines this would be considered material. If this issue is identified in more than two files, check a further 3 files to gauge if this issue is systemic. The AR has not followed the Licensee Guidelines If the strategy is incorrect/ not approved: Develop a revised recommendation ensuring Licensee Guidelines are adhered to and it is in the client s best interest Client to be provided with the review advice document. Where required, submit for approval before presenting to the client Contact the client to confirm the client understands the recommendations Evaluate the impact of the change and ensure the client s situation is not impacted detrimentally. If financial loss has been incurred, contact Futuro Compliance Manager. Financial Planning Advice Review Audit Question v.2 2 Dec

24 Question 21 Cash flow Does the client s cash flow support the recommended strategies? Legislation Regulatory Guide Futuro Policy reference Advice Practice Policy - Investment Research Policy - Modelling & Projections Ensure you assess whether the client can afford the recommended strategies The client must have adequate cash flow to meet living needs and fund the cost of the advice. All insurance premiums and advice fees must be included in cash flow calculations. This is especially important for complex strategies/products include but are not limited to: Transition to Retirement Gearing/Margin Lending. North guaranteed. Structured products. SMSF. Direct Equities Centrelink related advice or consequences: Impact on existing payments Impact on future entitlement Deeming implications Gifting rules Tax considerations: Capital Gains Tax implications Deduction qualifications Advice created tax events Insurance Funding Futuro does not support insurance strategies where the insurance premiums drastically deplete the client s superannuation savings. For example, Futuro would not support a strategy where the client has $10,000 in super, only super contributions are SGC of $2,850 per year and is paying $3,500 of insurance premiums a year where no salary sacrifice arrangements have been put in place to support the insurance premium funding. If cash flow is inadequate for a specialist strategy, record the response in this Question section. Financial assistance issues with fees that could breach the Superannuation sole purpose test should be recorded here. If the adviser has not clearly identified the strategy or provided sufficient supporting detail concerning the benefits and risks this would be considered material. If this issue is identified in more than two files, check a further 3 files to gauge if this issue is systemic. Requirement to ensure the advice document clearly articulates the recommended strategy and associated risks and benefits Take into account tax considerations, cash flow and income/growth projections, and any Centrelink implications Contact the client to confirm the client understands the recommendations Client to be provided with missing information in a review advice document Update file notes to document the discussion and when review advice document provided to client If advice originally provided was inappropriate and could lead to loss, contact Futuro Compliance Manager Financial Planning Advice Review Audit Question v.2 2 Dec

25 Question 22 Strategy best interest duty Is the strategy advice in the client s best interest? High Legislation s961g Corporations Act, Regulatory Guide Futuro Policy reference Advice Practice Policy - Ensure the advice is in the best interests of the client There are three elements to this question: Firstly, has the adviser provided strategy advice that is likely to result in the client being in a better position? Secondly, does the advice document meet the Licensees best interest requirements? Thirdly, adviser must demonstrate that they have taken any other steps, at the time the advice is provided, that would reasonably be regarded as being in the best interests of the client This question relates specifically to the strategy recommendation. Strategy Advisers are to compare the client s before and after scenarios to determine if the advice will result in the client being in a better position at the time of providing the advice. The results of the comparison must be disclosed within the body of the SOA or in the Appendices. Documentation The advice document must clearly demonstrate BID by linking the advice outcomes to the client s goals, objectives and financial situation and where possible include figures and specific timeframes. This can be done in either of the following ways: - a single paragraph or throughout the SoA. Where the advice/strategy is more complex, a single paragraph for each advice topic is recommended. If it can be shown that the advice is not in the client s best interest this would be considered material. If this issue is identified in more than two files, contact the Futuro Compliance Manager Requirement to provide advice that is in the client s best interest Is the client likely to be in a better position if they follow the advice? Better position demonstration must be included into the advice document; this can be done in a single paragraph or throughout the advice document Update advice document to include better position demonstrations and provide the client with an updated advice document If the client is not in a better position, contact the client and discuss alternative options and provide a revised advice document If advice originally provided was inappropriate and led to loss, contact Futuro Compliance Manager Financial Planning Advice Review Audit Question v.2 2 Dec

26 Question 23 Product best interest duty Is the product advice in the client s best interest? High Legislation s961g Corporations Act, Regulatory Guide Futuro Policy reference Advice Practice Policy - Ensure the product is in best interests of the client The advice document must clearly demonstrate how the product recommendation better meets the client s goals by linking the product outcomes to the client s goals, objectives and financial situation where possible include figures and specific timeframes. This can be done in either of the following ways: a single paragraph or throughout the advice document. If it can be shown that the product is not in the client s best interest this would be considered material. If this issue is identified in more than two files, contact the Futuro Compliance Manager Requirement to provide advice that is in the client s best interest Is the client likely to be in a better position if they follow the advice? Better position demonstration must be included into the advice document; this can be done in a single paragraph or throughout the advice document Update advice document to include better position demonstrations and provide the client with an updated advice document If the client is not in a better position, contact the client and discuss alternative options and provide a revised advice document If advice originally provided was inappropriate and led to loss, contact Futuro Compliance Manager Financial Planning Advice Review Audit Question v.2 2 Dec

27 Question 24 Strategy Sole purpose test Can you confirm that the advice fees charged do not breach the sole purpose test? High Legislation RG 175, section 62 of the SIA Act, Futuro Policy reference Futuro Advice Practice Policy Ensure the sole purpose test is used regarding any superannuation / retirement fund advice The sole purpose test is used to ensure a superannuation fund is maintained for the purpose of providing retirement benefits to its members (or attainment of a certain age) or for beneficiaries if a member dies. It is important to remember that trustees are not permitted by the sole purpose test to use a fund s assets to pay for services outside core and ancillary purposes (non-super related advice). When financial advice is provided to a client about their superannuation interests, this would generally fall within the scope of the sole purpose test; however, it is not appropriate to deduct the entire cost of the advice from super when broader financial planning advice is provided. Common breaches of the Sole Purpose test occur when: The initial advice fee has been entirely taken from the client s super fund however; the advice incorporates non-super related advice. Advice has been provided to both of the clients but the total fee has been taken from only one of the client s funds. The ongoing advice fee disclosed is to be taken from the super fund and one or more of the ongoing services are non-super related (i.e. debt advice). If it can be shown that the fees have been paid via superannuation and ancillary advice (non -super) has been provided without a separation of fee structure this will be considered material. If this issue is identified in more than two files, contact the Futuro Compliance Requirement to provide advice that is not in breach of the sole purpose test Clearly demonstrate and articulate to clients and in your advice documents that fees charged to the client superannuation/retirement fund may only be in relation to such advice any ancillary advice will need to be charged separately and detailed in advice documents including the SoA and RoA Calculate the correct amount that should have been deducted from the super environment. Document in the client file the rationale that was applied so that it is easy to see how the proportioning of fees meets the Sole Purpose Test requirements (e.g. the rationale may be based on the proportion of effort across the various advice types). Once the correct amount that should have been deducted from the fund is determined, have the transaction for the remainder of the fee reversed with the trustee of the fund. It is then optional if the Adviser decides to discuss with the client the need to charge this fee in a manner that is outside that of the superannuation environment. Financial Planning Advice Review Audit Question v.2 2 Dec

28 Question 25 Products approved products Are all recommended products on Futuro s Approved Product List? High Legislation s961b(2) Corporations Act, Regulatory Guide Futuro Policy reference Licensee Requirement Futuro Approved Product List Advice Practice Policy - Investment Research Policy Non-APL Platforms and Products Ensure the products recommended are on Futuro s APL Futuro s APL allows advisers to access a menu of financial products that have been investigated and analysed to ensure quality products are recommended. All Authorised Representatives are required to recommend products from the Futuro APL. An adviser s PI Insurance will not cover advice to hold/use non-apl products, unless authorisation is granted via the formal Licensee approval process. Evidence of the approvals must be retained on the client file. If a client has an existing product that is not on the APL, the adviser must investigate whether that product meets their client s needs and objectives. If there is no additional benefit to the client in terms of a price reduction or a specific relevant feature gained by recommending an APL product, the adviser must recommend the client retain their existing product. If the client requests a product that is not on the APL, the adviser must investigate whether that product meets the client s needs and objectives. The adviser should also consider APL products to ensure that the requested product provides a better outcome for the client than an APL product. Minimum research is Lonsec s Recommended rating Where there is a specific feature that is available on a non-approved product that is not available via an APL product: it is important to ensure that the specific feature provided is significant relative to the client s goals and objectives, and formal one-off approval is obtained. If it can be shown that the product is not on Futuro s APL or meets the requirement Lonsec rating this would be considered material. If this issue is identified in more than two files, contact the Futuro Compliance Manager Recommended product not on Approved Products List (APL) and without approval Product is to be referred to Futuro Investment Committee for approval If approval granted, retain on file for future reference If product not approved, the recommendation must be re-visited and review advice document provided Financial Planning Advice Review Audit Question v.2 2 Dec

29 Question 26 Product asset allocation Is the asset allocation consistent with Futuro s policies/guidelines? Legislation s961g Corporations Act, Regulatory Guide Futuro Policy reference Investment Research Policy - Risk Profiling and Asset Allocations Ensure the asset allocation is set at the right investor profile/investment strategy benchmark and variances have been fully explained The Asset Allocation in the advice document must be consistent with the identified risk/investor profile and follow Licensee guidelines. Any asset class variances must be justified with an explanation in the SOA in conjunction to how this will affect the client s objective(s). Lifestyle Assets are not included in an Asset Allocation however all investment assets should be considered when formulating an Asset Allocation strategy. Variances of over +/- 10% from any asset class or the overall defensive versus growth allocation, without an explanation must be reviewed / rectified. If it can be shown that the product is not in the client s best interest this would be considered material. If this issue is identified in more than two files, contact the Futuro Compliance Manager Requirement to ensure the client s asset allocation is consistent with the Licensee s defined investor profiles and meets licensee guidelines. Determine why the investor profile s asset allocation is not consistent between the two documents If the advice document contains the incorrect asset allocation, provide a review advice document with the correct asset allocation Evaluate the impact of the change to any investments that have the incorrect asset allocation. Implement necessary changes and ensure the client s situation is not impacted detrimentally Financial Planning Advice Review Audit Question v.2 2 Dec