The concept of a duty of care can be quite an emotive subject, but as Arthur Childs explains, it should be kept simple.
With so much debate at the moment around the new pension freedoms and financial education it throws up the actually quite complex subject of an adviser’s duty of care towards clients.
The FCA has a whole raft of documents on the subject but it states that: “there is a duty for advisers to use reasonable skill, care and diligence to provide advice. The standard of care required to discharge that duty is that exercised by the reasonably competent adviser.” It goes on to say it is unable to provide specific examples of duty of care as it depends on so many different factors.
But for me, defining a ‘duty of care’ is quite simple. I believe there’s an overriding legal and moral obligation for advisers to make sure clients are well looked after and to give advice in their best interests.
Knowing what is right for your client
When I first started out in the industry, I found myself in hot water because of my duty of care to a client. I converted a reducing term policy because I knew it was in his best interests which, over the longer-term, cost underwriters money and my employers at the time thought my duty of care to the client was taking precedence over the job. But he was my client and I was going to look after him.
If you are making a conscious financial decision on behalf of a client, I believe you should treat that client just like a member of your family. I have family members who are clients and I don’t treat them any differently.
Part of our staff internal training focuses on ‘duty of care’ where we highlight three main points:
- Explain the most suitable financial methods to clients and don’t just promote products.
- Only operate within your area of expertise.
- Ask yourself what is right for the client?
You have to show you are on the side of the client, just like a coach. At that first client meeting, clients are generally quite nervous but I know I’ll do whatever is best for them, even if I tell them they don’t need my services. I will happily lose a client rather than provide choices solutions that I know are not in a client’s best interests. Incidentally, I actually find I win more clients because of this approach.
More work required around financial education
“You have to show you are on the side of the client, just like a coach.”
It’s about winning trust. The two well-known money commentators in the media, the BBC’s Paul Lewis and money-saving expert Martyn Lewis command a huge amount of public trust because they come across as being on the side of the consumer and provide what is considered to be unbiased information and advice.
If advisers were seen to give both sides of the argument and educate clients this way, it would help towards further restoring the industry’s reputation.
The financial education we offer clients is based on a theory of ‘knowledge management’, which is basically providing the right information to the right person at the right time.
Information needs to be relevant and easily understood in an increasingly complicated world. We’ve written around 40 guides on different financial products which are available on our website and we’ve tried to make them as accessible to the reader as possible. And there’s more we can do to educate our clients using other channels such as video and podcasts.
Keep it simple
In underlining the meaning behind a duty of care, the FCA supports a structure where a company engenders these behaviours from the top down. The banking industry obviously still has much work to do to restore trust but I’d argue family adviser firms already have an established culture of care in place. It’s simply in our interests as you can’t run a business if you are not looking after your clients properly.
There just needs to be something simple in place around how to treat a client – it could be written down on a short document. One of the biggest problems, I believe, is the FCA’s ‘information overload’, which takes us as advisers away from what we should be doing.
We need to remember we are simply in business to enhance people’s lives and educate them about money.