Not incorporating the client’s age when considering whether the advice is appropriate

With older clients, their age is a particularly relevant factor to consider when deciding whether advice is appropriate to them. For example, an adviser recommended a 78 year old client set up a SMSF and invest in direct shares. The SOA was queried by Dover Compliance, and ultimately adjusted to include:

  1. a further recommendation that the client’s fifty year old son become a member and a trustee of the SMSF and be copied in on all relevant documents and otherwise actively involved in the SMSF; and
  2. additional paragraphs explaining that the advice was appropriate to the client despite his age because of his special circumstances including:
    1. a history of investing in direct shares outside of super;
    2. an active interest in direct shares;
    3. blue chip bias and cash reserves balancing out the risk;
    4. good physical and mental health; and
    5. (hopefully) an expected further ten years of good health.

Bear in mind that Dover’s default time period for growth-oriented investments such as shares is ten years. When the growth asset is a direct share, this means that clients need to be able to actively manage the recommended portfolio ten years from now. In the above example, that meant when the client turned 88.

In addition, if an older client’s health and/or life situation changes – as it almost certainly will when clients are aged 55 or over, the SOA needs to ensure that there is sufficient liquidity available to that client when the change occurs. Prudence dictates that clients should avoid wherever possible a forced sale of the more volatile, growth-oriented assets.

The Dover Group