Managing Conflict (Seminar 6)

Question 1

Outline two suggestions from the Financial Ombudsman Service (FOS) to ensure clients have appropriate expectations concerning the nature of the advice provided.

Answer 1

FOS recommends financial advice providers clearly explain the type of service they are providing. Clients don’t know the difference between information, general advice, personal advice, limited advice and execution-only services. Explain and document the nature of the service provided.
Explain the risks to clients who choose to act against your advice. Be very clear in explaining the risks and documenting that the course of action is against your advice. Explain the risks in language the client understands, make a contemporaneous fi le note and have the client sign it.

Question 2

Provide an example of ‘best practice’ recommended by the Financial Ombudsman Service (FOS) for appropriate recordkeeping with respect to client communications.

Answer 2

Take detailed file notes. Documents created at the same time as the activity or advice in question are usually given more weight than later recollections of what was said or done. Whenever possible, confirm verbal instructions from a client in writing (e.g. send them an email after a telephone conversation confirming what was said). Statement of Advice and file notes should detail how any conflicts between goals, available resources and willingness to take risk are resolved.
Write down a client’s objectives in the words the client has used in answering your questions about their objectives and how to quantify those objectives. This demonstrates that you have heard and understood the client’s goals in seeking advice. FOS does not consider client objectives and instructions written in industry terms that few clients would understand to be a reliable record.

Question 3

Based on the FOS’s ‘Top 10 Tips for Getting Financial Advice Right’, how may an adviser’s awareness of their own areas of competency and expertise help to prevent conflict?

Answer 3

If your services are not suited to a particular client (e.g. they are seeking advice about direct shares / SMSF / margin lending / derivatives / etc., and you don’t provide that service), you must tell them so. Don’t try to shape the client to your offering.
Understand any products you are recommending. Don’t advise on products you don’t understand. Don’t just hand over a Product Disclosure Statement (PDS) – you must explain the PDS to your client and record your discussion in the Statement of Advice (SOA).

Question 4

Identify the five conflict handling styles described in the Thomas Kilmann Conflict Model and explain the intentions of a person using each of those styles.

Answer 4

i. Avoiding / withdrawing style indicates low concern for both their own and the other’s interests. One party retracts its point of view of backs away from the situation, leaving it unresolved. Dissatisfaction may lead to future conflict.
ii. Accommodating style indicates a low concern for their own needs and high concern for others. One party is willing to ‘give ground’ to meet the needs of the other. Useful option on minor matters or where relationship management is of high importance.
iii. Competing style indicates a high concern for own needs and low concern for others. One party negotiates to maximise their results at the expense of the other party’s needs – destructive for interpersonal relationships, and the solution is likely to be temporary as it leaves person who loses in a difficult / uncomfortable situation.
iiii. Collaborating style indicates high concern for both. Parties cooperate to produce a result satisfactory to both. Supports development of interpersonal relationships, and builds permanent solutions and commitment to these solutions as a result.
v. Compromising style indicates some concern for both their own and the other’s needs. Involves the settlement of differences via compromises by one or both parties.

Question 5

Conflict handled well can be positive and constructive, whereas conflict handled poorly can be negative and destructive. Provide three examples of positive payoffs which may result from conflict, when managed constructively.

Answer 5

Managed constructively, conflict can sometimes produce positive payoffs. For example:
• Pressures and frustrations are released
• New perspectives and information can be gathered, leading to better decision making and problem solving
• Complacency can be challenged
• Change can take place
• Cohesiveness can actually increase

Question 6

Describe the type of listening most suited to conflict management and resolution.

Answer 6

People involved in conflict resolution should listen actively and with empathy. Active listening can be effective in identifying the root cause of a conflict situation. The three components in the active listening process are:

• attend to and focus on the other person
• encourage the other person
• reflect or mirror the other person’s message
Emphatic listening can help the listener tune into the content and feeling aspects of the message and also help the individual identify his or her own feelings. Probing questions complemented by empathic listening can challenge and encourage all parties in a conflict to communicate openly and honestly.

Question 7

Successful communicators integrate their nonverbal with the verbal and contextual information to form the total message. What are the likely implications of a ‘mismatch’ between the verbal and nonverbal components of a message?

Answer 7

Nonverbal communication (NVC) includes gestures, posture, eye movements, facial expressions, vocalisations and voice qualities.
NVC tends to be less conscious than verbal communication and therefore more difficult to control. It complements and reinforces verbal communication but can also conflict with it. It is also typically regarded as being more spontaneous, and therefore more honest, than the verbal component.
If your verbal message does not match the nonverbal component, there is a tendance to believe the nonverbal part of the message.