All financial advisors need a financial advisory agreement. As they advise clients on their personal finances, it is essential that they clearly articulate the terms and conditions under which they work to prevent difficulties and disagreements. This article discusses the things that all financial advisor need to include in their financial advisory contract.

What Should a Financial Advisory Agreement Contain?

1. Description of Services

Your financial advisory agreement must disclose all the services you will provide and those you will not. Be detailed and ensure that it is clear and accessible to those without extensive financial knowledge.

You need to explain that you will initially meet with the client to collect all relevant information. Next, explain that if the client wishes to proceed, you will need to analyse and assess their information, identify all suitable financial planning strategies and develop some financial planning recommendations for them.  Also, include information about how you will provide ongoing financial advice.

Let the client know that they can expect to receive a Statement of Advice if they choose to engage you after your first meeting. If it is possible, specify a time frame in which they will receive it. If you are a member of the Financial Planning Association of Australia, you could also tell clients that you carry out your tasks according to its Code of Conduct.

Further, be sure to specify whether you provide holistic and scaled financial advice services.

This clause is essential because a large proportion of legal disputes regarding client agreements involve the scope of services promised. As such, the more precise your financial advisory agreement is on this point, the lesser the likelihood of being involved in legal disputes.

2. Payments

You need to outline all the fees that a client can expect to pay you. Be sure to let them know whether their initial meeting with you is free of charge. Further, specify that if they choose to engage your services, they could potentially expect to pay for:

  • Providing a statement of advice;
  • Implementing financial advice;
  • Ongoing financial advice (including levels of fees);
  • Annual fees; and
  • Any fees incurred if an existing client implements a different financial strategy.

Also, specify whether a client who agrees to pay a fee for ongoing advice can expect to receive newsletters, regular reports on their portfolio, regular reviews with you or invitations to seminars as part of that fee.

If you offer different levels of ongoing advice fees corresponding to different kinds of membership (for example, gold, silver or platinum), detail what services a client can expect for each level.

Also, be sure to include your terms of payment. For example, if you require payment at the end of a meeting with you (excepting the first meeting), you need to say this expressly.

3. Commissions

Your financial advisory agreement also needs to outline whether you receive a commission or volume-based payment for recommending any financial product. Although legislation prohibited the receipt of commissions on new investments and super products as of 1 July 2013, it is still lawful to receive commissions on some financial products like life insurance. Advisors can also continue to receive commissions for products bought before that date.

On this matter, your clause must be accurate and detailed. You should also specify that your commission comes from a client’s investment.

4. Limitation on Liability

Your agreement must explicitly limit your liability as much as is possible under the law. Your financial advisory contract needs to tell clients what liability you take on and those you limit.

For example, you can disclaim liability for the performance of, or estimated risk attached to any particular financial product.

5. Confidentiality

Your financial advisory agreement should also specify that all financial and personal information about clients is kept confidential. Further, disclose that it will only be used to assist you in advising them.

6. Mediation

Your financial advisory contract should also specify that in the event of a dispute, both parties must attempt dispute resolution and mediation before instituting legal action. This should be contained in a dispute resolution clause.

Dispute resolution processes are more cost-effective at first instance than legal action and may help to preserve a measure of goodwill between the parties.

7. Termination

Your agreement needs to specify how either party can terminate the agreement. Also, include details about what fees are owed on termination.

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If you are a financial adviser requiring assistance drafting or reviewing your financial advisory agreement, contact LegalVision’s qualified contract lawyers today. Call LegalVision on 1300 544 755.

Carole Hemingway

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