While many clients wish to receive comprehensive financial advice and the Australian Securities and Investments Commission’s (ASIC) Report 224 Access to financial advice in Australia which is released in December 2010. It’s found that a third of Australians are now expressing a preference for piece by piece advice rather than holistic or comprehensive advice.
ASIC has provided encouragement for advisers and licensees to embrace scaled advice through their new regulatory guidance. Thus, this is principally due to the best interest duty and related obligations being introduced under FOFA. Apparently ASIC is trying to give advisers comfort and confidence to provide scaled advice. But, in other words advice on a piece by piece is based on holistic advice on client’s financial circumstances.
Conducting a proper needs and risk analysis prior to assisting the client in making an informed decision is of particular importance to the regulators. Hence, this requires obtaining all the relevant information from the client by looking at the big picture and then offering holistic advice. An adviser is not supposed to sell policies anymore and the annual compliance report requires the adviser to provide details of how many clients waived their right to an in-depth analysis. Thus, this is clearly not the preferred way of doing business and could well lead to an on-site visit from the FSB.
Whilst there is a need for holistic advice and advisers come across many instances in the real world where it is both impractical and an irritation for the client who is not really interested in the adviser’s regulatory obligations. Therefore, Scaled advice is nothing new in financial industry. In fact, if a client wants to add a new car to his policy or remove beneficiary from his policy and it is highly unlikely that a full review of his portfolio is required.
Scaled advice is typically advice on one or several topics rather than on the client’s entire financial circumstances. Indeed, the scope of the advice may be limited by the client through their instructions to the adviser or by the adviser through their understanding of the client’s situation. Provided it is suitable for the client and scaled advice can be given at any time and whether it is for a new client or an existing client who has previously received general or comprehensive advice.