COLUMNS • INSURANCE
Insurance adviser conduct obligations: part V Steve Wright explains how to navigate the new FMC Act and Code and ensure the client understands your advice. BY STEVE WRIGHT
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y now, you might wonder if my articles in TMM will ever stop being about conduct obligations? The answer is ... yes, of course. This is the last one. Until we need another! For now, the focus is on ensuring the client understands your advice, and it seems to me the obligation comes in two levels:
Level One – the FMC Act The first level comes from Section 431J of the FMC Act, which prohibits advisers from giving financial advice unless the adviser has taken reasonable steps to ensure clients understand the nature and scope of the advice being given and any limitations. I interpret this to refer to an understanding of the type or nature of the advice being given at a generic level, not the actual substantive advice that is yet to be given. At a basic level, “nature and scope” could be “advice on your life cover needs but nothing else and for no one else”, or “advice on life and disability insurance needs for all the members of your family but not health insurance and not fire and general insurance”. It might also be wise to specifically state your advice will not include, for example: preparing wills; retirement planning; budgeting; mortgage advice; investment advice; financial planning; drafting trustee resolutions etc –
‘The client scope of service agreement is the ideal place for detailing the “nature and scope” of your advice and any limitations.’ unless, of course, you are going to do those things. The client scope of service agreement is the ideal place for detailing the “nature and scope” of your advice and any limitations.
Level Two – the Code Code Standard 4 goes further than the FMC Act and states that taking reasonable steps to understand the advice “relates to the financial advice itself”. Since the FMC Act already deals with the nature and scope, the Code, in my view, must mean the substantive advice itself, as contained in a “Statement of Advice” or similar document evidencing your recommendations. Code Standard 4 goes on to say that understanding the advice includes the
