From CompliNEWS | Financial Service Intelligence Watch
The importance of a record of advice in financial services
Advisers and brokers often express frustration over the extensive compliance requirements imposed by regulators, with the record of advice frequently cited as a major burden, reports CityWire. However, this view overlooks the significant protective benefits that a well-maintained record of advice offers to both financial service providers (FSPs) and their clients.
Mtho Maphumulo, an associate at Adams & Adams, highlights the legal necessity for FSPs to document the advice they provide to clients, as stipulated by the Financial Advisory and Intermediary Services Act (FAIS). Proper documentation can safeguard providers against negative ramifications, such as legal liabilities and regulatory penalties. The FAIS mandates that FSPs maintain comprehensive records for at least five years, including details on premature cancellations, client complaints, compliance issues, and actions taken to adhere to legal requirements.
To comply effectively, FSPs must thoroughly understand their clients’ financial situations, product experience, and goals. This understanding should form the basis of a detailed analysis and assessment, leading to tailored financial product recommendations. When replacing existing products, advisers must also inform clients of potential costs and implications. Recording this advice ensures that all factors considered, products evaluated, and recommendations made are documented, providing a robust defense against any future disputes.
Failure to maintain an accurate record of advice can have serious consequences. The FAIS Ombud frequently encounters cases where inadequate records lead to judgments in favor of clients. Without proper documentation, FSPs cannot effectively counter client allegations, resulting in legal and financial repercussions. Inadequate records often stem from insufficient client analysis, highlighting the need for thorough and detailed documentation.