What you can expect as a client?

When engaging the services of financial professionals and organisations, the investor has the following rights. 

Honesty, competency, and ethical conduct

Honesty does not just mean a truthful answer to the client’s questions but also transparency and forthrightness on the part of the professional.

The financial professional should maintain adequate level of capabilities, skills and knowledge in professional services. The client has a right to know about what the adviser is doing to ensure that their knowledge & competence continue to be current & relevant. 

Ideally, the financial professional should give the client all the information that affects his/her financial decisions and the information that pertains to the financial decisions made on their behalf. The investor also has a right to get the rationale behind all the decisions made by the adviser.

Independent and objective advice

Financial Professionals must base their decisions on proper informed analysis, prudent judgement and diligent effort. They need to consider & analyse the client situation, their specific needs & goals.

Product and service recommendations offered need to be holistic & should be able to satisfy the client needs comprehensively.

The adviser should be able to explain the rationale behind the advice being offered and how the advice is a good fit for the client.

On their part, the client should engage with the adviser with a view to understand the recommendations & their rationale from the adviser & get clarity on the subject matter of advice, rather than with a view to cross question or verify.

The client must receive communications on a timely basis, either in electronic, written, verbal, or other modes that the client is comfortable with. 

Integrity, Professionalism & client’s best interest

Advisers need to put their client interests first and not place personal gain or advantage before the client’s interests. They should act in their best interests in a Fiduciary capacity. The adviser should follow professional code of conduct, should comply with appropriate rules, regulations and professional requirements.

That is how financial professionals can hope to earn trust & confidence of their clients, that would ensure an ongoing, win-win relationship. This is vital for the business success of the adviser.

Such advisers with integrity represent their clients & clients only. It is as if the adviser is sitting on the client’s side of the table and advices them on what is best in their situation.

Fair treatment with respect to other clients

Fairness is about disclosing the professional capacity in which they are providing services.

Fair treatment of clients is not about treating every client the same way. It’s about taking into account individual circumstances and needs and accordingly advising them to engender best outcomes for them. A generalised view towards every client may not fulfil the quality of services that an adviser is expected to deliver.

For e.g.: Every client may have different objectives and different risk tolerance levels, resulting in investment portfolios that are very different from each other. One should not consider it to be an unfair treatment when another client is suggested a riskier portfolio and thus earns higher returns or when another client’s less risky portfolio performs better when the financial markets go down.

Disclosure of all the existing conflicts of interest while delivering advice

Advice from a financial professional should be based solely on the benefits to the investor/client, his/her financial circumstances, and his/her financial goals; advice should not be based on financial professional’s personal interests.

The client should always ask how the professional is paid (e.g.: commission, brokerage, flat fee, etc.) to understand where the adviser’s personal financial interests may lie. The way an adviser is compensated can greatly influence their advisory behaviour.

Products with high embedded commissions may induce them to suggest these to the exclusion of others that are probably more suited. This brings in conflict of interest & can compromise client’s financial wellbeing. When they earn commissions, they also act as agents of a principal and act in their interests as their representatives.

Information about conflict of interests arising out of the mode of compensation or due to any other reason should ideally be disclosed in the document shared by the adviser.

Investment Rationale & philosophy

Financial professionals must base decisions on facts and figures directly relevant to the client’s financial circumstance, needs and goals. The client has the right to get clarifications and rationale behind every decision suggested. The advice provided should be suitable to the client’s financial goals and limitations.

From compliance point of view & to offer broad guidance to the client, the adviser should ideally have a document named “Investment Policy Statement”. It is a policy document outlining the broad investment philosophy of the adviser while recommending investments to the clients.

This outlines all the policies, guidelines, constraints, limitations and anything else the clients need to know. It aims at providing clarity and offering transparency in the relationship between the client and the adviser.    

Explanation on charges for the advice and services

The client has the right to get a detailed explanation about the services bouquet being offered, the professional fee to be paid for the services delivered to him/her & the charges pertaining to the products suggested.

The adviser should provide the client with a brochure/ document that would explain him/her about the professional fee charged.

Financial professionals should ensure that their clients understand the fee schedule, the way it is charged, frequency of charges etc. The fee charged for similar level of work should be similar for all other clients too.

Data Integrity and Confidentiality

The client has the right to privacy of their personal and financial information. Only the financial professionals and their staff directly involved in the investment decision-making or reporting processes should have access to the clients personal and financial information.

The information should be used only for the intended purpose. It is about maintaining and protecting client information in a way that prevents unauthorised access and inappropriate disclosure.

His/her personal financial information should be disclosed to others only if it is required by law, or by the regulator with lawful jurisdiction.

Appropriate and complete records

The financial professionals working on behalf of the clients must document the work done by them. The advice given or the plan made by the adviser should be documented in a detailed manner & communicated as appropriate to the clients.

It may include the information provided by the client, the work done to arrive at the advice, the products suggested according to the requirement of the client, the explanations behind the products suggested, and any other information relevant to the same.

Such a record is not only for compliance purpose but also to help any future adviser about the thought behind the investment suggested. Such documentation will greatly help an adviser in the future when a review needs to be done & changes need to be suggested in the existing portfolio.

Source – CFA Institute User’s Guide, FPSB code of ethics & professional responsibilities, Ladder7 advisory guidelines