Just before Melinda returns from leave, you meet with her clients Craig (age 47) and Penny (age

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Question:

Just before Melinda returns from leave, you meet with her clients Craig (age 47) and Penny (age 44) Keystone. Melinda met with Craig and Penny approximately 18 months ago, after they had come across from another financial adviser (with a different AFS licence). According to the file notes, Craig had contacted Melinda as they were unhappy with the service they were getting from the previous adviser. Craig wanted Melinda to review their previous financial plan and look after their financial plan in the future.

The previous file note shows that Melinda provided them with advice to switch their superannuation and insurance to products on the Donaldson Hall Financial Services Pty Ltd (DHFS) approved products list.

The product replacement research showed the recommended superannuation products to be significantly cheaper than Craig and Penny's previous products and could be easily commuted to a retirement income stream (when required in the future). It also showed that most of the insurance benefits and premiums in the replacement products were broadly comparable with their previous products.

While it appears the products were comparable, from your experience one of the replacement products has longer waiting periods and shorter benefit periods. You also notice in the file that the insurance provider has provided cover with a significant loading, which resulted in the premium being higher than the previous policy. The records show that Craig accepted and signed the insurance documents, but there are no notes of Melinda discussing the different terms and definitions with either Craig or Penny.

Before proceeding with the statement of advice, you wait until Melinda returns from leave and ask her about the previous advice. Melinda explains as follows:

Craig and Penny contacted me out of the blue last year asking for an appointment. They were unhappy with the turnover of advisers at the previous financial planning business. They were paying ongoing advice fees but didn't feel they were getting any value for those ongoing fees (approximately $2,500 p.a.). I explained to them I would be happy to meet with them and would waive my initial advice fee. I told them I charge fees rather than commissions, so the cost of my advice could be much higher than their previous adviser. Craig still wanted to go ahead, as he was adamant they wanted me to be their adviser and felt that even if my fees were higher, he would be okay with this. I also recommended that they take up my

'annual service package' for ongoing services for a period of 364 days, as keeping it to less than a year meant they wouldn't have to worry about more paperwork coming through such as fee disclosure statements etc.

In regard to their superannuation and insurances, Craig had always been in excellent health and very fit, so I was surprised when his insurance offer came back with a significant loading and I did speak to Craig about this. Craig said he was comfortable that the superannuation contributions would more than adequately cover the premiums and we proceeded with the rollover and established the insurance. Penny wasn't too involved with the process as Craig appeared to be making the decisions and taking control of the family finances. Penny didn't actually say too much during the initial appointment.

I realise there isn't much paperwork or many file notes in their file. I'll have to check with our paraplanner as he mentioned we may have temporarily lost some records when our computer server went down.

Question

(a) Explain what Melinda should have done to demonstrate compliance with the Financial Planners and Advisers Code of Ethics 2019 value of Honesty.

(b) Identify and discuss how the obligations under Standard 1 and Standard 7 of the Financial Planners and Advisers Code of Ethics 2019 apply to the issues raised in this scenario.