Financial advisers must consider long term interests and future circumstances when determining the scope of advice and should therefore be ‘standard six aware’, according to TAL.
Speaking at an Association of Financial Advisers (AFA) webinar, TAL national technical manager, David Glen, said the Code of Ethics guide issued in October 2020 emphasised financial advisers must consider long-term interests of the future circumstances of clients when determining the scope of advice.
Standard six stated that advisers “must take into account the broad effects arising from the client acting on their advice and actively consider the client’s broader, long-term interests and likely circumstances”.
“You very much have to be standard six aware at that point of the scoping and scaling of advice,” he said.
Glen explained the approach that an adviser should take to standard six post-scoping and scaling of the advice.
“So firstly, the standard doesn't require you to provide advice to anyone but for clients. So there was a lot of hysteria when standard six came to light that everyone regarded standard six as requiring the adviser to provide advice and statements of advice to all family members.
“That is not a correct view,” he said.
It was important, he said, to establish the identity of the client in scoped advice.
“Whenever you are dealing with ethics situations, it's not only a standard six situation, you really have to take a step back and ask yourself ‘Who is the client?’
“Now the reason why this is important is very often you will be confronted with complex family structures. And there'll be corporate entities in that family structure, discretionary trusts, partnerships, et cetera.
“You have to really get a complete picture of the client’s family situation and of the client’s business situation, if the client is an SME operator, so that you can establish the identity of all these associated entities and then you can consider the impact of your advice on the associated entities.
“So if, for example, you're giving advice to your client, in the plan's capacity as a member of the SMSF, you're not giving advice to the trustee of the SMSF, which might be a separate corporate entity, but what you need to do is you need to consider the impact of your advice on this corporate trustee when you deliver the advice to the client.”
He said it was therefore very important, at the time of assembling a Statement of Advice, that the adviser is aware of all the associated entities and cover it in the advice, to the identified client.”
Glen said the best approach to take in any ethical matter was to err on the side of caution in any borderline situation.