Compliance in a Post-FOFA World (Part 1): Traps for Financial Advisers to Avoid

Since the implementation of the Future of Financial Advice (“FOFA”) reforms in July 2013, many practices continue to grapple with the associated implications on their business. The first part in this blog series addresses one of the early stages of the client / adviser relationship: the fact finding process.

Part 1: The Critical Importance of a Comprehensive Fact Finding Process

Whilst limited regulatory and legislative guidance is given regarding specific methodology, advisers are required to dedicate time and resources to “know their client” before providing advice.

Typically, an AFSL holder (“the licensee”) would supply Fact Find templates to their authorised representatives, which would be used to record all relevant client information. This sounds simple, but in our experience, there are two common issues:

      1. Is the Fact Find documentation sufficiently comprehensive to capture pertinent client information?

Whilst the following list is not exhaustive a Fact Find should capture the clients’:

        a) Reason(s) for seeking financial advice (which should be used to formulate specific and measurable goals and objectives); *


        b) Income and expenses;


        c) Assets and liabilities;


        d) Existing superannuation, investment platform and / or insurance information;


        e) Estate planning arrangements;


      f) Risk profile assessment (though some licensees prefer to document this separately)
      * Our experience in compliance file reviews have indicated that some licensees are not aware of the need to incorporate a detailed scoping section within the Fact Find, which is likely to result in compliance failures. This is because in order to meet the best interests duty obligations (s 961B of the Corporations Act 2001), advisers must work with the client to ascertain the client’s objectives (including the subject matter of the advice sought), financial situation and needs (ss 961B(2)(a)–(b)).

If the relevant fields are not available in the Fact Find template to begin with, advisers – particularly those new to the industry – may not appreciate the significance of advice scoping. As a matter of good practice, advisers should also record the reason(s) why certain areas of advice were scoped out and note the key risk(s) to the client for excluding those areas of advice.

2. Are authorised representatives given adequate training to ensure that Fact Finds are comprehensively and accurately completed?

Where it is reasonably apparent that the information relating to a client’s relevant circumstances is incomplete or inaccurate, adviser should make reasonable enquiries to obtain complete and accurate information: s 961B(2)(c).

In practice, some advisers take the information provided by clients “on face value”, which is problematic in cases where clients divulge false information or withholds pertinent information about their financial situation. Whilst clients cannot be forced to disclose all their personal information, advisers should explain why certain information is needed as part of the advice process.

Detailed file notes must be kept whenever pertinent information cannot be obtained from the client. If an adviser is unable to demonstrate the basis of their advice, it may be appropriate to decline the provision of advice altogether.

Furthermore, where the information provided by a client appears inaccurate (eg their stated income is not in line with their occupation), the adviser should be prepared to make additional enquiries.

In conclusion, all advisers should be aware of the critical importance of conducting a comprehensive fact finding process for all clients. In order to satisfy the best interests duty obligations under the Corporations Act, the basis for providing advice must be clearly demonstrated and inevitably this becomes difficult if there are deficiencies in the fact finding process.

The availability of a comprehensive Fact Find template is critical. Authorised representatives must also receive adequate training to ensure that complete and accurate information is sourced from clients wherever possible. If any information provided seems inconsistent, always verify with the clients.

The use of file notes and working papers should also be encouraged as this can assist in the coherent flow of information from the initial meeting / fact finding stage to the resultant Statement of Advice.