Many financial advice firms draw up a legally binding CSA to formalise the agreement between both parties at the onset of the client/planner relationship.
The document typically sets out how much the client will be charged and what they can expect to receive in return.
Financial planners often use the CSA process to segment their client bases into platinum, gold and silver categories with different levels of service.
While financial planners have always been legally obliged to deliver everything promised in the CSA, it has traditionally proved difficult for clients to demonstrate they have been under serviced.
However, that has changed as part of the Future of Financial Advice (FOFA) reforms, according to Midwinter managing director Julian Plummer.
“In the past, you could argue it was easier to put clients in the ‘gold’ segment and not deliver on those services,” said Mr Plummer.
But FOFA has “shifted the emphasis towards the delivery of advice” with changes that have been “baked into the Corporations Act”, he said.
“If the adviser’s not fulfilling all their obligations, it has suddenly moved from a civil problem to an ASIC [Australian Securities and Investments Commission] problem,” said Mr Plummer.
Minter Ellison partner Richard Batten points out that the fee disclosure statement (FDS) – a new requirement that lists the services delivered to the client in the last year – is “an additional piece of documentary evidence that is now available to plaintiff lawyers”.
There should not be a mismatch between the CSA (a prospective document) and the FDS (a retrospective document), said Mr Batten.
“This does reinforce the need to be careful about the way the CSA is written and not over-promise what will be delivered,” he said.
In the end, financial planners would do best to stick to some age-old advice: ‘Under-promise and over-deliver’.
“Don’t over-promise in your CSA. If you can deliver it, that’s great – but if you don’t think you can deliver it, don’t put it in there,” said Mr Plummer.