FIN111 Lecture Notes - Lecture 12: Fiduciary, Cash Flow Statement, Income Statement
Week 12 – Development of a Statement of Advice
• The financial planning process should be systematic, organised and provide a
detailed framework.
- Must ilude the liets goals ad ojeties ad put foad appopiate
strategies and recommendations.
• Financial planning encompasses many different disciplines.
- For example, personal risk insurance, taxation, etc.
• According to Part 7.7 of the Corporations Act 2001, a financial plan is formally
referred to as statement of advice (SOA).
Regulation of Financial Advice
• The obligations vary depending on whether the advice is personal advice or general
advice (RG175.1).
- General advice does not take into account the particular circumstances of the
client
• ASIC provides some guidance as to the difference.
• Everyone is deemed to be a retail client unless they satisfy one of the requirements
to be classified as a wholesale client
• A person who provides financial product advice to retail clients must:
- hold an Australian financial services (AFS) licence
- comply with the disclosure and conduct obligations in Pt 7.7 of the Act (some
limited exclusions apply).
Disclosure Documents Required in Respect of the Provision of Financial Products
• Part 7.7 of the Act and Regulatory Guides (RG) 175 and (RG) 168 set out the various
disclosure documents that are required to be provided by a planner.
• The three main documents are:
- financial services guide (FSG)
- statement of advice (SOA)
- product disclosure statement (PDS)
• Ensures retail clients receive appropriate information and advice, so they can make
informed decisions.
Financial services guide (FSG):
• Prior to the provision of advice, a FSG must be provided.
• Enables a client to decide whether or not to obtain financial services from the
financial planner
• The FSG must provide the following information:
- who is providing the service
- what financial services are being offered
- who the service provider is acting for
- details of how the planner is remunerated
- details of any potential conflicts of interest.
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Statement of Advice (SOA)
• Personal advice from a financial planner must be issued with an SOA in such a way
that they are able to make an informed decision.
• After advice is provided, the SOA must be provided as soon as possible.
• An SOA must include:
- the name of the party providing the advice
- a statement setting out the advice
- the reasoning or basis that led to that advice
- the remuneration and other benefits received by the provider of the advice
- all conflicts of interest that may affect the advice.
• Three main types of advice statements:
- comprehensive advice statement
- scaled advice statement (limited scope)
- no advice statement (to carry out a transaction, such as buying shares).
Product Disclosure Statement (PDS)
• Must contain sufficient information to enable an informed decision about whether
to purchase a financial product (Pt 7.9 of the Act).
• A PDS includes the following information:
- fees payable in respect of a financial product
- risks of the financial product
- benefits of the financial product
- significant characteristics of the financial product
• PDS must be provided at or before the time when a recommendation is made to buy
a financial product.
• Since 2011–12:
- shorter PDSs have been permitted
- make it easer for retail clients to find and understand key financial information.
The Legal Obligations Relating to the Provision of Financial Advice
• Pt . of the At. Pat .A deals ith the est iteest dut.
• Arose out of the FoFA reforms introduced in 2012.
• On 13 December 2012 ASIC released guidance on the best interests duty in an
update to RG 175 Licensing: Financial product advisers — conduct and disclosure.
• Regulatory guide was updated in October 2013.
Best interest duty and safe harbor provisions
The best interest duty mean that a planner has 4 separate duties – a duty to:
• At i the liets est iteests
- Provide advice to a client that would leave them in a better position.
- This process should involve identifying and assessing the:
- liets eleat iustaes ad dislosig this though istutios.
- This process should involve identifying and assessing the:
subject matter of the advice sought by the client
scope of the advice required
expertise of the advice provider
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financial products that can be recommended.
• Provide advice that is appropriate
- Advice must only be provided if it would be reasonable to conclude that the
advice is appropriate to the client
• Provide an advice warning
- Determining whether the client has provided all relevant information needed to
enable the adviser to provide advice that is in the best interests of the client
• Pioitise the liets iteests i the eet of a oflit.
- Advice provider must prioritise the interests of the client if the advice provider
knows that there is a conflict between the interests of the client and the
interests of the adviser
When is an SOA Required and What is its Purpose?
• SOA must be provided at the same time as, or as soon as practicable after, the
advice is provided (s. 946A).
• The purpose is to communicate advice and recommendations concerning the
financial affairs of a client.
• To be effective, an SOA must disclose sufficient information to enable a person to
make an informed decision about whether the advice is appropriate to their
situation and whether they should act upon the advice
When is an SOA Not Required?
• The Act provides for a limited number of situations where an SOA does not need to
be provided (see RG 175.147 (ASIC 2013b)) - they are:
- when the client is not a retail client
- where the advice relates to a general insurance product, a cash management
tust, asi deposit poduts, o‐ash paet poduts elated to a asi
deposit podut o taelles heues
- when providing further advice to a client
• The Act provides for a limited number of situations where an SOA does not need to
be provided (see RG 175.147 (ASIC 2013b)) - they are:
- when providing personal advice to clients having a small amount of funds to
invest (less than $15 000)
- where the advice does not involve the purchase of a financial product and where
the entity providing the advice does not receive any remuneration.
• Obligations relating to the provision of further advice:
- RG 175.194 and s. 946B Act detail circumstances where an SOA may not need to
be provided.
- Instead, the planner may provide the client with a record of advice (ROA) instead
of an SOA.
- An ROA must be given when, or as soon as practicable after, advice is given.
- For an ROA, some information is required but there is no prescriptive format.
Types of SOAs
• Financial planning advice can generally be classified into three main types:
- Issue specific or scaled advice → Addresses particular aspects of a liets
personal finances
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