MenuFAAA Principles of Good Professional Practice
Stage 1 - Engagement
Stage 1 of the financial advice process – Engagement – is all about setting the foundation for a strong, ethical client relationship. At this stage, financial advisers explain what financial advice involves, what services they offer, and how they work, making sure the client understands their role and responsibilities.3
They assess whether they’re the right fit for the client’s needs, identify any potential conflicts of interest, and agree on the scope of the engagement. This agreement is documented clearly and includes details like fees, responsibilities, and how the relationship can be ended. The goal is to build trust and ensure both parties are on the same page before moving forward.
The FAAA Principles of Good Professional Practice booklet is also available to download.
Outcomes
1. Identify the client4, including:
- In whose beneficial interest advice should be provided.
- If there is more than one client.
- Any conflicts between the interests of parties seeking advice.
- Whether there are any vulnerabilities or like factors that would influence advice delivery.
2. Be satisfied you understand5:
- The motivation of the client in seeking financial advice.
- The client’s expectations.
- The client’s level of financial literacy.
- The client’s previous experience of financial advice (if any) and the outcome of that experience.
3. Be satisfied the client understands6:
- The outline of the financial advice process, the adviser’s approach to this, and what will be required from the client at each stage.
- The fees and other costs that may be incurred and how these are paid.
- Any tax implications associated with the provision of advice.
4. Identify, highlight and resolve any client misunderstanding, and any unrealistic expectations.7
5. Identify any conflicts of interest between adviser and client, and be satisfied8:
- These can be managed in line with your ethical and regulatory obligations.
- The client understands the conflict and how it will be managed.
6. Identify, highlight and resolve any other matters that may limit or impede delivery of advice in the client’s best interest, and be satisfied the client understands what the limitations are, how they will be resolved and any client obligations in relation to this.9
7. Decline to proceed with engagement and (where appropriate) refer the client to another adviser if10:
- There is an identified unmanageable conflict.
- The adviser is not able to meet the client’s needs.
- There are other reasons that advising the client would be unethical.
8. Identify a provisional scope of advice and be satisfied the client understands11:
- Any limitations to the advice provided.
- If relevant, why providing limited scope advice is compatible with client best interest.
- That the initial scope of advice may need to be adapted and amended as the adviser learns more about the client’s needs.
9. Provide client with a record of the agreed terms of engagement, including:
- Services to be provided.
- Applicable fees and how these will be paid.
- Circumstances in which the engagement may be terminated by either party.
10. Obtain the client’s consent to proceed.12
The FAAA Principles of Good Professional Practice booklet is also available to download.
3 FPSB Standards 1, 2, 3
4 Div 2 of Pt7.7A(a),(c) of the Corporations Act; s961J(1); AML/CTF Act 2006
5 s961B(2)(b)(i); RG 244.65; FPSB Standard 6
6 FPSB Standard 3
7 FPSB Standard 6, 11
8 s961J(1); RG 181
9 RG 244.68; RG 244.81
10 s961B(2)(d)
11 RG 244D
12 FASEA Code of Ethics Standards 4, 5c, 7
Please note
These principles are intended as a foundation on which advisers can develop their own approach to best practice. This guidance is not exhaustive and is not intended to prescribe how advice must be provided. It outlines principles of good practice and the outcomes they are intended to achieve, rather than specific actions.
Advisers must apply their own professional judgement when using this material, taking into account the needs and circumstances of their clients, relevant legal and regulatory obligations, and any licensee requirements.