The Code Standard as drafted is:
Give financial advice that is suitable for the client
A person who gives financial advice must ensure that the financial advice is suitable for the client. The person must have reasonable grounds for the financial advice, having regard to the nature and scope of the financial advice and the client’s circumstances.
Reasonable grounds for the financial advice means grounds that a prudent person engaged in the profession of giving financial advice would consider to be adequate in the same circumstances, including in relation to:
- the strategy underpinning the financial advice
- each financial advice product covered by the financial advice.
The client’s circumstances means those aspects of the client’s situation, needs, goals, and risk tolerance that a prudent person engaged in the profession of giving financial advice would consider to be relevant to the financial advice.
I have omitted the commentary, for the sake of the length of this post, but it is important.
First, I have heard people question the use of the first dot point: "...the strategy underpinning the financial advice..." I must admit, this sounds like it emerges more from the concepts of investment advice, than risk, home loans, or other areas. Having felt that, after sitting with the text for a while, I am not unhappy with the requirement. I can imagine part of the statement of advice listing client goals, and then a statement of strategy which addresses them, and selections for actions and products which deliver on them. Get these three in alignment and the plan should easily meet the test. For strategy, think "main overarching approach". A client with a need to save money may see a "strategy of reduce cost and buy value" delivered in cutting out bells and whistles and increasing excess levels. So I guess I have come around to feeling comfortable with this requirement. The recommendations section of the SOA may break down as "Strategy, actions, products" in a series of headings.
My concerns are that there are two tests offered in the Code, one is the advice is suitable given the nature and scope of the financial advice being provided. The other is that of "...a prudent person engaged in the profession of giving financial advice would consider to be relevant to the financial advice". The first test is in the hands of the client and the adviser, the second is in the judgement of the FADC about what an industry professional who is 'prudent' would seek. Although, to some extent, that view is kind of implicit in the whole process of the FADC, I prefer the primacy of the client and adviser scope, and that one should have priority.