FASEA’s Code of Ethics commences 1 January 2020 and is underpinned by five (5) values – this is a guide to Competence.
Each of your clients will be interested in the competence you can exercise (and demonstrate) whilst delivering your professional services. Can I count on you to have the knowledge, skills and experience to assess and deliver the services I require? Can you put me in a better financial position and help me achieve my goals?
Our definition of competence is that it is the degree to which your interactions with your clients meet performance expectations through the exercise of knowledge, skills and experience. It typically comprises a combination of practical and theoretical knowledge, cognitive skills, behaviours, and values. These are used in the course of evaluating individual needs and then delivering appropriate and relevant advice for the benefit of clients.
From FASEA’S perspective:
“Acting to demonstrate, realise and promote the value of competence requires you to have regard to the knowledge, skills and experience necessary to perform your professional obligations to each of your clients. It requires you to assess the professional services required by each client with regard to their individual needs, priorities, circumstances, and preferences, expressed or implicitly identified as the subject matter of the financial advisory engagement. Whilst it may be possible to supplement your professional competence by accessing the expertise of others, the duty of competence is ultimately personal and cannot be outsourced to others. If you don’t possess the particular competencies required to assist your client, in accordance with other ethical requirements in the Code, you must refer your client to another professional.
The value of competence requires your life-long commitment to developing and maintaining knowledge, skills and expertise at a level of currency required to benefit your clients in particular engagements, and in anticipation of other client engagements in the course of your professional career.
It requires your regular self-reflection and the exercise of professional judgement to determine when to augment your knowledge, skills and experience with assistance from other professional financial advisers, or indeed other professionals with specialist expertise in the service of the client’s best interests.”
We would argue that a big part of competence is being able to identify what ‘success’ looks like from the client’s perspective and then being able to self-assess if you have the relevant knowledge, skills and experience to deliver that outcome. Advisers need to be aware of the boundaries of their knowledge and communicate the limits of their competence to clients where necessary. Competence is also interlinked with the other values of diligence and fairness as it relates to the delivery of professional services.
We also know from our research that competence is positively correlated to client satisfaction and can contribute to the reduction of conflict in the adviser/client relationship.
Some Practical Suggestions
Start a checklist
Here are a few suggestions about what questions to include on your checklist.
- Did I explain the advice process in a way that my client could understand?
- Did I understand and take into account my client’s needs, priorities, circumstances, and preferences?
- Did my advice and recommendations take into account my client’s broader long-term interests and likely circumstances?
- Was the advice I provided my client communicated in plain English and clear and simple?
- Did I take steps to help my client understand and consent to the advice I provided?
- Did I clearly explain the benefits, costs and risks associated with the advice/products I recommended to my client?
- Were the advice and recommendations I provided to my client appropriate to their circumstances?
- Did I apply a high level of knowledge and skills?
Here are a few practical actions you could consider.
- Ask your client the right questions to clearly understand what their needs, priorities, circumstances and preferences are – use open-ended questions at the outset to build a broad-based understanding, then ask more specific questions to identify what ‘success’ looks like in their eyes.
- Prepare some open-ended questions in advance of your review meeting – here are some examples:
- If we were meeting again three years from today, and you were looking back over those three years, what has to have happened in your life for you to feel happy with your progress?
- What are the biggest challenges you will have to face in order to achieve that progress?
- What are the biggest opportunities that you would need to focus on to achieve those things?
- What role would you like me to play during those three years?
- Do you feel as if you’re currently reaching your goals? Why/why not?
- What changes are you expecting to occur in the next 6-12 months?
- What are your most pressing financial concerns?
- Do you feel that I have fully understood your needs so far?
Be honest in your assessment of your competencies when deciding if you are well-positioned to perform your professional obligations. Do I have the right mix of knowledge, skills and experience appropriate to the client’s advice requirements? If not, you are required to refer your client to another professional.
Disclaimer This article was first issued in December 2019 and is point in time content based on the Financial Planners and Advisers Code of Ethics 2019 Legislative Determination, the accompanying Explanatory Statement and Guidance, together with proprietary research. It does not constitute legal advice. We encourgae you to seek your own professional advice on how the FASEA Code of Ethics may apply to you. Suggestions in this article are not exhaustive and are not intended to be binding on the author or related entities. Further guidance may be released by FASEA and may change the suggestions within this point in time article.
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