The Australian Securities and Investments Commission (ASIC) thinks that Australians increasingly prefer to receive financial advice in the form of piece-by-piece (or 'scaled') advice, as opposed to all-in-one, comprehensive advice.
In response, ASIC wants to encourage advisers to scale advice where appropriate, in a way that complies with the adviser's legal obligations.
To start this process, ASIC has published Consultation Paper 164 entitled 'Additional advice on how to scale advice' (the Paper). The Paper:
If you are a financial services licensee or an authorised representative, then you may give a retail client factual information, general advice or personal advice — as long as you make it clear what kind of advice you are providing.
ASIC wants to encourage advisers, where appropriate, to provide advice on single topics (rather than holistic advice on all topics). The guidance and examples proposed in the Paper seek to educate advisers on the services they are offering and the obligations they have about providing advice.
If you are in any doubt as to the nature of advice you may be providing to a client, then the Paper will help you distinguish between factual information, general advice and personal advice — especially in the context of superannuation. The examples contained in the Paper may provide a useful template for how you interact with clients while complying with your legal obligations.
One of the key obligations for financial advisers in the Corporations Act 2001 (Cth) (Corporations Act) requires a licensee (or authorised representative) to have a reasonable basis for giving personal advice to a retail client. This is known as the 'suitability rule' or 'know your client' rule. 1 The section states that an adviser must only provide advice if:
Similar obligations apply to giving general advice.2 Also, advisers are required to act honestly, efficiently and fairly at all times.
ASIC Regulatory Guide 200 entitled 'Advice to super fund members' (RG 200) currently provides guidance on how to give personal advice3 and general information.4 It outlines the differences between the concepts of factual information, general advice and personal advice, and provides examples of each:
|Factual information||General advice||Personal Advice|
|Objectively ascertainable information whose truth or accuracy cannot be reasonably questioned||Advice prepared without taking into account the client's objectives, financial situations or needs||Advice that is given or directed to a client in circumstances where the provider of the advice has considered one or more of the client's objectives, financial situation and needs|
The ultimate aim of the Paper is to implement ASIC's proposal to replace RG 200 with a new regulatory guide that builds on RG 200 by expanding:
ASIC wants to clarify that an adviser may give a retail client factual information, general advice or personal advice, as long as the client is aware what kind of service is being offered by the adviser. ASIC wants to highlight that different obligations attach to each type of information or advice.
The perceived need for a new regulatory guide arises from ASIC Report 224 entitled 'Access to Financial Advice in Australia', available here which, among other things, identified that one-third of Australians expressed a preference for 'scaled advice' as opposed to 'holistic advice':
|Piece-by-piece or scaled advice||Holistic advice on all topics|
|Advice about one area of a client's needs (e.g. insurance) or a range of issues||Advice on all aspects of a client's financial circumstances in a full financial plan|
The Paper is a consultation paper, which will form the basis for a new regulatory guide. It:
ASIC wishes to build on the guidance contained in RG 200 by replacing it with a regulatory guide containing ASIC's existing guidance, together with:
The Paper contains examples of how to give factual information, general advice and personal advice on the following non-superannuation topics:
|Topic||Examples of information/advice|
|Basic deposit products and insurance||
|Shares and other listed financial products||
|How to invest an inheritance||
For some of these examples, the Paper contains scenarios where factual information, general advice and personal advice is provided. These take the form of a conversation between an adviser and client.
The Paper also contains examples of how to give factual information, general advice and personal advice on the following superannuation topics:
|Topic||Examples of information/advice|
|Transition to retirement||
|Nomination of beneficiaries||
|Superannuation and Centrelink payments||
|Single issue advice on retirement planning||
For all of these examples, the Paper contains scenarios where factual information, general advice and personal advice is provided. These take the form of a conversation between an adviser and client.
ASIC has requested submissions in response to the Paper before 8 September 2011. A phase two paper containing further examples is due to be released shortly after.
ASIC's current timetable indicates that the new regulatory guide will be published in November 2011, to be followed by a further consultation period if required.
It is also anticipated that the new regulatory guide will be updated in 2012 after financial advice reforms.
For more information about your obligations when giving personal advice to retail clients, contact Maddocks on (03) 9288 0555 and ask to speak to a member of the Maddocks Corporate and Commercial Team.
You can read other articles concerning superannuation and SMSFs here.
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1 See section 945A of the Corporations Act.
2 See section 949A of the Corporations Act.
3 Under section 945A of the Corporations Act.
4 Under section 949A of the Corporations Act.
Kate is a lawyer in Maddocks General Commercial Team. Kate joined the firm in 2010 as a paralegal and was admitted to practice in December 2012.
Kate has been involved in acting for a range of commercial, government and professional industry clients.
Her areas of expertise include:
The legal information and commentary on this site is general only. Documents ordered through Cleardocs affect the user's legal rights and liabilities. To assess their suitability for the user, legal accounting and financial advice must be obtained.
For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of their team.