Article 6: Informed consent and understanding
By Marshall Ross, Acenda Life Partner Education Manager
Financial advice is all about the client. Returns, insurance amounts, and financial outcomes are great, but the real value of advice is in the way it makes clients feel. Clients should walk away feeling more confident, secure, and with less anxiety about big financial decisions because of their experience receiving advice.
Two areas of the Financial Planners and Advisers Code of Ethics 2019 (code of ethics) directly contribute to amplifying these positive feelings when clients go through the advice process – informed consent and understanding.
Standard 4 talks about acting with the informed consent of a client, and Standard 5 talks to the importance of acting not only in the best interest of the client but ensuring that the client understands the appropriateness of the advice that is being given.
These standards aren’t just about compliance with the code. When they are truly incorporated into the advice process, they directly lead to educated and confident clients who walk away with the maximum amount of value from the advice process.
The challenges for advisers are:
- Gauging the level of understanding a client has
- Assessing whether a client has been able to truly provide informed consent, and
- Having the appropriate documentation to demonstrate client understanding and approval in the client’s file.
Fulfilling the obligations required under the code of ethics in practice.
1. Visual tools
For many people, complex concepts are easier to understand using visual representation rather than text and reading. Using visual tools can often help simplify and clarify the understanding and informed consent component of the advice process - showing how the advice recommendations solve problems, what the consequences and trade-offs of the recommendations are, and what risks and considerations the client should be aware of. Visual tools include mapping, matrixes, graphs, flowcharts, or any visual interpretation of an advice strategy.
2. Two-way file notes
File notes are essential in protecting the adviser by providing a timely record of the advice process. When demonstrating understanding and informed consent however, the file note alone falls short as it only represents one side of the interaction – the adviser’s. Using approaches that validate file notes, such as seeking confirmation of a meeting summary or checking the validity of the adviser’s perception of priorities and discussion points with the client without using compliance-heavy language such as ‘file note’ can help both increase client engagement and demonstrate client understanding of the advice.
3. Meeting recordings
With many advice tools now available for automated recording and transcription of meetings, integrated solutions can help demonstrate understanding and consent. It should be made clear to a client that such a tool is being used, and the client needs to indicate that they are comfortable with this. The meeting should still include regular check-ins throughout the advice process to confirm understanding, such as asking clients to summarise concepts or advice outcomes in their own words, particularly when discussing risks or trade-offs.
4. Concise advice documents and delivery methods
Complexity is a barrier to comprehension, and advice documents are often very complex for clients to understand. Lengthy, text-heavy documents are difficult for clients to assimilate and, as a result, don’t achieve the level of understanding and informed consent that the code of ethics requires. Advisers can deliver simplified documentation to increase client understanding. By consistently reviewing advice documents using a 'minimum effective dose' approach, advisers can meet ASIC RG90 SoA requirements. This ensures that protection comes from the holistic file rather than solely from the advice document. Advisers can also consider the method of advice delivery. With no legal requirement to deliver a SoA in a prescribed written format, format options such as presentations, videos, animated explainers, and more are viable formats to deliver advice in a way that is clear, concise and effective. The FAAA has resources that can assist advisers in implementing alternative SoA methods in their practice to drive more client engagement and better understanding.
5. Transparent philosophies
Having a clear advice philosophy, whether it be around investment, retirement, or insurance, creates a simplified environment for positioning advice to clients. Having this central starting point allows an accelerated pace to delivering the valuable personalisation process of advice, where the philosophy is tailored to the individual with a core understanding of why the advice is appropriate, and consent to the philosophy the adviser acts upon.
6. Educational materials
One of the biggest barriers to understanding advice or giving true informed consent is a client’s lack of financial knowledge. Research consistently shows reducing levels of financial literacy in Australia on both basic and complex financial concepts. Therefore, one of the easiest ways to help clients understand advice is to educate them as part of the process. This can be done efficiently through educational materials delivered as pre-recorded videos, one-page flyers, e-books, animated or explainer videos, or podcast episodes. These one-to-many styles of materials are then able to be rolled out to all clients as part of on-boarding and as part of the advice process to bring financial literacy to a level where a client can more easily understand advice concepts and provide informed consent.
Outcomes
The code of ethics is clear in setting a high behavourial standard for advice and validating informed consent and client understanding. By integrating the techniques outlined in this article into the advice process, an adviser can clearly demonstrate the requirements of Standards 4 and 5 of the code of ethics. Seamless integration delivers efficient, high-quality advice as the process itself is built around a consistent principle of client centricity. This embeds understanding and informed consent into the advice, leading to confident clients and a process that meets the highest professional and ethical standards.