What does the Paper mean for me?
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.
Obligations under the Corporations Act
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:
- (know your client) they inquired about the client's personal circumstances relevant to the advice; and
- (know your product) in light of the client's personal circumstances, they considered and investigated the subject matter of the advice in a way that was reasonable in the circumstances; and
- (ensure the advice is appropriate) in light of the adviser's consideration and investigation, they have made sure the advice is appropriate.
Similar obligations apply to giving general advice.2 Also, advisers are required to act honestly, efficiently and fairly at all times.
Existing ASIC guidance on giving advice
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|
What is the aim of the Paper?
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:
- its content and providing a greater number of examples of advice on a broader range of topics; and
- its application to all financial services licensees, including superannuation trustees, financial planners and accountants.
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|
What does the Paper do?
The Paper is a consultation paper, which will form the basis for a new regulatory guide. It:
- updates guidance for licensees and authorised representatives about how to give compliant, scaled advice;
- gives examples of providing factual information, general advice and personal advice on non-superannuation topics;
- gives examples of how to provide factual information, general advice and personal advice on five new superannuation topics:
- intra-pension issues;
- transition to retirement;
- nomination of beneficiaries;
- superannuation and Centrelink payments; and
- single issue advice on retirement planning;
- discusses ASIC's intention to revoke Class Order 09/210, which provides conditional relief for some superannuation fund trustees from section 945A of the Corporations Act (this class order does not apply to trustees of self-managed superannuation funds); and
- calls for industry submissions by 8 September 2011.
What new guidance is there for AFS trustees on how to scale advice?
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:
- a discussion of good practice arrangements for scaling advice; and
- an expanded series of examples of factual information, general advice and personal advice for both non-superannuation and superannuation topics.
What are some examples of the guidance on scaled advice on non-superannuation topics?
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.
What are some examples of the guidance on scaled advice on superannuation topics?
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.
What happens next?
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.
More information from Maddocks
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.
More information from Cleardocs
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.