Efficient scoping & scaling of advice

July 22, 2020 AEST

Scoping and scaling advice rules allow advisers to limit their advice to what’s important to the client, but the rules are complex and the onus is on advisers to prove financial planning compliance – so how do you do it efficiently?

What ASIC wants

The scoping & scaling of advice rules were introduced to allow advisers to address the trade-off between the complexity (and cost) of full financial advice and the needs of the client as well as their ability and willingness to pay. And to provide scaled advice where appropriate.

ASIC wants to ensure that the client is placed in a position to make an informed decision and understands what they are missing out on when advice is limited and that the adviser is not simply making life easier for themselves.

What ASIC has recommended is that advisers implement a process that can filter or triage all the client’s circumstances to provide evidence that any reduced scope & scale of advice still adheres to the best interest duty requirements for the client.

The Scope & Scale of Advice Process

1) Goal Setting

The process starts with helping the client set their goals and a discussion around what the client wants to achieve regarding their financial (and sometimes personal) circumstances. AstuteWheel developed a Goals Based Advice Tool for this purpose.

ASIC wants to see evidence of the “client’s voice” in this discussion as well as evidence of the adviser’s interaction in re-stating goals as SMART goals (Specific, Measurable, Achievable, Realistic and Time bound).

2) Scoping

The next step for the adviser is to link the client’s goals to the various service offering that they provide (eg. Retirement, Investments etc.) which will determine the scope of advice being offered to the client. However the onus is then on the adviser to identify what is not being covered (eg. Risk, Debt, Estate Planning etc.) and to explain the implications of this to the client.

The logic behind this is that the client is not expected to understand the financial planning process and may not realise that, for example, life insurance should be an integral part of their financial plan. Therefore, it is up to the adviser to explain why it is important and what can go wrong if an area of advice is overlooked or scoped out.

3) Scaling

Once the high level scoping has occurred ASIC has made it clear that in their view ‘all advice is scaled to some extent’ and they want to see evidence of an advisers discussion explaining to the client what matters will and won’t be addressed in a particular scope of advice. In retirement advice for example will the adviser be addressing TTR strategies, SMSF’s and whether their non-super debt and investment will be taken into account to determine if they are on track to retire comfortably.

There may be good reasons why a 45 year old couple with $200,000 in super would not require advice on TTR strategies and SMSF’s however, knowing whether they will still have a mortgage to pay off at retirement is probably important to them.

4) AstuteWheel Scoping & Scaling Tool

AstuteWheel’s Scoping & Scaling of advice tool provides an easy to use solution for this complicated problem by gathering information from upstream tools such as:

These tools provide necessary linkages of the clients’ stated needs and then provides a structured, interactive and visual process to deliberate scoping & scaling of advice issues with the client and come to agreement as well as provide evidence of any discussions.

A report can then be generated for the client as part of the service offering as well as providing a comprehensive audit trail for compliance.

5) Data Flow

The relevant information is then available to auto-populate downstream tools such as generating a Letter of Engagement, an Ongoing Service Agreement and Statement of Advice.

The AstuteWheel software embeds the compliance requirements into every stage of the advice process for both new clients and review clients to ensure that any statement of advice, or record of advice, is built on the foundations of the client’s goals; consideration of their broader circumstances; and that they are fully informed of the implications of limitations to their advice and have agreed to proceed on that basis.

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