To illustrate the point let’s use mortgages as an example – but the same principles apply to insurance. 

The process

The adviser collects information and then identifies a suitable lender or lenders and recommends to the client that an application be made to a specific lender. This is the first point at which financial advice is provided.

The duties of the Financial Advice Provider (FAP) and adviser at this point are all those covered under FMC Act 2013 s431I-s431P. These includes things like:

• Provide disclosure (stage 3 disclosure) which includes fees, expenses, conflicts and commissions.
• Take reasonable steps to ensure the client understands.
• Comply with the Code of Professional Conduct for Financial Advice Services.

The lender may come back with a lending proposal and at that point, the adviser provides recommendations on whether to accept the proposal and how to structure the loan. This is the second time advice has been provided.

There may be some further debate with the lender who eventually comes back with a loan agreement. The adviser provides a recommendation to the client on whether the terms are suitable and whether the client should proceed. This is the third time advice has been provided. 

What is the issue?

The issue in this example is financial advice has been provided multiple times during the process –and could change further depending upon who eventually provides the loan. The longer the process takes, the greater the need to have documented the advice and provided disclosure. 

If these stages occur in close succession i.e., over a couple of days, providing a single statement of advice at the time of finalising the advice is permissible. However, that is often not the case which means disclosure needs to be provided each time advice is given.

This could be progressive disclosure based upon the advice provided at the time, or it could be a simple one or two page templated document stating that a full statement of advice will be provided once the lender and terms of the loan have been finalised. 

How you handle disclosure is up to you but the most important thing is to be aware of when you are giving financial advice and following the correct process.

Please get in touch with our team if you have any questions or need help to address any of the points above – we are here to help.