ASIC RG 244 — ASIC Regulatory Guide – RG 244 Giving information, general advice and scaled advice

Page 1 REGULATORY GUIDE 244 Giving information, general advice and scaled advice December 2012 About this guide This guide is for Australian financial services (AFS) licensees, authorised representatives and advice providers who give information and advice to retail clients, and explains:  the differences between giving factual information, general advice and personal advice; and  how to meet the advice obligations in Ch 7 of the Corporations Act 2001, including the best interests duty and related obligations, when giving ‘scaled’ advice (i.e. personal advice that is limited in scope). Our guidance aims to facilitate access for retail clients to good quality information and advice about all financial products. Page 2 REGULATORY GUIDE 244: Giving information, general advice and scaled advice © Australian Securities and Investments Commission December 2012 Page 2 About ASIC regulatory documents In administering legislation ASIC issues the following types of regulatory documents. Consultation papers: seek feedback from stakeholders on matters ASIC is considering, such as proposed relief or proposed regulatory guidance. Regulatory guides: give guidance to regulated entities by:  explaining when and how ASIC will exercise specific powers under legislation (primarily the Corporations Act)  explaining how ASIC interprets the law  describing the principles underlying ASIC’s approach  giving practical guidance (e.g. describing the steps of a process such as applying for a licence or giving practical examples of how regulated entities may decide to meet their obligations). Information sheets: provide concise guidance on a specific process or compliance issue or an overview of detailed guidance. Reports: describe ASIC compliance or relief activity or the results of a research project. Document history This guide was issued in December 2012 and is based on legislation and regulations as at the date of issue. The reference to the relief instrument in RG 244.40 was updated in August 2015 because this instrument was reviewed as part of the sunsetting of legislative instruments under the Legislative Instruments Act 2003. In December 2021 we added a note to RG 244.27 about certain communications in relation to handling and settling an insurance claim. Disclaimer This guide does not constitute legal advice. We encourage you to seek your own professional advice to find out how the Corporations Act and other applicable laws apply to you, as it is your responsibility to determine your obligations. Examples in this guide are purely for illustration; they are not exhaustive and are not intended to impose or imply particular rules or requirements. Page 3 REGULATORY GUIDE 244: Giving information, general advice and scaled advice © Australian Securities and Investments Commission December 2012 Page 3 Contents A Overview .................................................................................................4 ASIC guidance and Government FOFA reforms .....................................4 Improving access to good quality information and advice .......................5 Current ASIC guidance ............................................................................6 Class order relief for superannuation trustees.........................................7 Overview of our guidance ........................................................................7 Examples in our guidance .......................................................................7 Other obligations for AFS licensees ........................................................7 Some guiding principles for giving information, general advice and scaled advice ...........................................................................................8 B Giving factual information ................................................................. 10 Factual information or advice?.............................................................. 10 Factual information is not general or personal advice .......................... 11 What if you have personal information about a client? ......................... 12 C Giving general advice......................................................................... 14 Giving general advice under an AFS licence........................................ 14 Licensing exemption for financial product issuers ................................ 15 General advice is not personal advice .................................................. 15 What if you have personal information about a client? ......................... 16 D Giving scaled advice .......................................................................... 19 Giving personal advice ......................................................................... 19 Practical guidance and examples about complying with the best interests duty when you are giving scaled advice ................................ 21 E Communicating the service you are providing ............................... 32 Communicating the scope of personal advice ...................................... 32 How this guidance relates to your obligations under the best interests duty ....................................................................................................... 34 F Delivering the information or advice ................................................ 35 Using different ways to give information or advice ............................... 35 Appendix: Examples of giving information and advice ............................. 37 Example 1: How to invest an inheritance ............................................. 38 Example 2: The adequacy of retirement savings ................................. 43 Example 3: A retirement savings health check..................................... 49 Example 4: Changing investment options—Call centre conversation .. 55 Example 5: Insurance—Call centre conversation................................. 63 Example 6: Making extra contributions—Email advice .......................... 73 Example 7: Paying a windfall into superannuation or mortgage .......... 84 Example 8: Superannuation and Centrelink payments––Effect on age pension of accessing funds through superannuation or a mortgage redraw ................................................................................................... 91 Example 9: Transition to retirement ...................................................... 97 Example 10: How long will my account-based pension product last? 108 Example 11: Nomination of beneficiaries ........................................... 118 Example 12: Motor vehicle insurance—Which level of excess? ........ 123 Example 13: Information and advice about basic deposit products ... 127 Example 14: Advice from a stockbroker to an existing client ............. 132 Key terms .................................................................................................. 134 Related information .................................................................................. 138 Page 4 REGULATORY GUIDE 244: Giving information, general advice and scaled advice © Australian Securities and Investments Commission December 2012 Page 4 A Overview Key points A key objective of the Government’s Future of Financial Advice (FOFA) reforms is to facilitate access for retail clients to financial product advice, including ‘scaled’ advice (i.e. personal advice that is limited in scope). This regulatory guide sets out ASIC’s guidance in light of these reforms. The guidance and examples set out in this guide are for all Australian financial services (AFS) licensees, authorised representatives and advice providers who give information and advice to retail clients. Our guidance seeks to: • explain the differences between giving factual information, general advice and personal advice (see Sections B and C); • provide guidance on how you can give scaled advice that complies with the obligations in Ch 7 of the Corporations Act, including how to comply with the best interests duty and related obligations, introduced as part of the FOFA reforms (see Section D); • explain the importance of communicating to a client the service that is being provided to them (see Section E); • explain that the Corporations Act is generally neutral about how advice is delivered (see Section F); and • provide industry-specific examples of giving factual information, general advice and scaled advice (see the appendix). ASIC guidance and Government FOFA reforms RG 244.1 This regulatory guide provides guidance for all Australian financial services (AFS) licensees, authorised representatives and advice providers who give information and advice to retail clients about financial products. It builds on and replaces our guidance previously published in Regulatory Guide 200 Advice to super fund members (RG 200) on giving information and advice about superannuation to retail clients. We have now withdrawn RG 200. RG 244.2 This regulatory guide has also been updated in response to the Government’s Future of Financial Advice (FOFA) reforms, which seek to facilitate access for retail clients to financial product advice, including ‘scaled advice’ (i.e. personal advice that is limited in scope). RG 244.3 The Corporations Amendment (Future of Financial Advice) Act 2012 and the Corporations Amendment (Further Future of Financial Advice Measures) Act 2012, containing the final FOFA reforms, commenced on 1 July 2012. Page 5 REGULATORY GUIDE 244: Giving information, general advice and scaled advice © Australian Securities and Investments Commission December 2012 Page 5 RG 244.4 This regulatory guide sets out our guidance on how to give factual information, general advice and scaled advice that complies with the law, including the best interests duty and related obligations, introduced as part of the FOFA reforms and now contained in Div 2 of Pt 7.7A of the Corporations Act 2001 (Corporations Act). Improving access to good quality information and advice RG 244.5 This regulatory guide aims to improve Australian retail clients’ access to good quality information and advice about all financial products by giving guidance to AFS licensees, authorised representatives and advice providers on giving information, general advice and scaled advice. RG 244.6 Our research has found that many Australian consumers would like more information and advice about investment issues. ASIC’s Report 224 Access to financial advice in Australia (REP 224), released in December 2010, found that a third of Australians ‘are now expressing a preference for piece- by-piece advice rather than holistic or comprehensive advice’. Note: See REP 224 at paragraphs 53 and 62. A copy of this report can be downloaded at www.asic.gov.au/reports. The original data was taken from Advice and limited advice report, Investment Trends, Sydney, December 2009. RG 244.7 Many AFS licensees are already providing scaled advice that is limited in scope and complies with s945A of the Corporations Act. Under s945A, advice must be appropriate for the client. Section 945A will be repealed on 1 July 2013, and is replaced by the best interests duty and related obligations. RG 244.8 While many AFS licensees are already giving scaled advice, they are not uniformly providing good quality advice. In March 2012, we released Report 279 Shadow shopping study of retirement advice (REP 279). This report found that, ‘while the majority of advice examples we reviewed (58%) were adequate, 39% of the advice examples were poor, and two examples were good quality advice (3%)’. RG 244.9 The scope of most of the advice we reviewed in the shadow shopping research was limited in some way. When reviewing advice examples, we saw some evidence of the scope of the advice being inappropriate. In several instances, particular topics were excluded from the scope of the advice, to the potential benefit or convenience of the adviser, and to the significant detriment of the client. Note: In this regulatory guide, references to ‘client’ mean ‘retail client’ as defined in s761G of the Corporations Act and Div 2 of Pt 7.1 of Ch 7 of the Corporations Regulations 2001 (Corporations Regulations). RG 244.10 For example, our research found that some advice providers excluded the consideration of a client’s debts from their retirement advice. However, if these debts were significant, retirement advice could not have been properly Page 6 REGULATORY GUIDE 244: Giving information, general advice and scaled advice © Australian Securities and Investments Commission December 2012 Page 6 provided without taking this into consideration. In such a situation, a client might mistakenly think that the advice about their retirement was comprehensive, and that all of their relevant circumstances had been taken into account. RG 244.11 REP 279 outlined that, even for advice on retirement planning that is very limited in scope, there are some issues that cannot reasonably be excluded from the scope. For example, it would be difficult for an advice provider to recommend significant extra salary sacrificing to superannuation without some understanding of the client’s cash flow and other financial commitments. RG 244.12 Advice providers whose advice examples were rated as ‘good’ by us had a clearly defined scope, and assisted the client to form realistic and measurable objectives about their retirement and to implement strategies to try to achieve them. We saw evidence of multiple strategies being compared and evaluated, good budgeting and cash flow projections, and realistic discussions about what clients could fund in their retirement. Good written and personal communications ensured that clients were aware of their options, while the Statements of Advice (SOAs) were logical, well structured and easy to understand. RG 244.13 This regulatory guide applies to all advice, not only advice about retirement issues. However, we think that the findings in REP 279 are useful for all advice providers across the industry. Current ASIC guidance RG 244.14 Other ASIC regulatory guidance also deals with the distinctions between factual information, general advice and personal advice, and on how to give scaled advice. This includes: (a) Regulatory Guide 36 Licensing: Financial product advice and dealing (RG 36); (b) Regulatory Guide 84 Super switching advice: Questions and answers (RG 84); and (c) Regulatory Guide 175 Licensing: Financial product advisers—Conduct and disclosure (RG 175). This has been updated to reflect the introduction of the best interests duty and related obligations, and to be consistent with this regulatory guide. Note: We will review, in light of the FOFA reforms, our other regulatory guidance about providing advice. Page 7 REGULATORY GUIDE 244: Giving information, general advice and scaled advice © Australian Securities and Investments Commission December 2012 Page 7 Class order relief for superannuation trustees RG 244.15 We have previously given licensed superannuation trustees and their authorised representatives class order relief from the requirements in s945A where personal advice is provided about a member’s existing interest in their fund: see Class Order [CO 09/210] Intra-fund superannuation advice. Note: References in this regulatory guide to sections (s), parts (Pts), and chapters (Chs) are to the Corporations Act, unless otherwise specified. RG 244.16 [CO 09/210] gives relief from s945A, and therefore the class order will cease to apply when s945A is repealed on 1 July 2013. Overview of our guidance RG 244.17 Our guidance seeks to: (a) explain the distinction between giving factual information, general advice and personal advice (see Sections B and C, as well the examples in the appendix); (b) provide industry-specific examples of giving factual information, general advice and scaled advice (see the appendix, as well as the shorter examples in the body of this guidance); (c) provide guidance about how to give scaled advice that complies with the personal advice obligations in Ch 7, including the best interests duty and related obligations (see Section D); (d) explain the importance of communicating to a client the service that is being provided to them (see Section E); and (e) explain that the Corporations Act is generally neutral about how advice is deliveredthat is, the law is generally the same, regardless of whether advice is provided by telephone, email, internet, video conferencing, face-to-face, or in any combination of these or other ways (see Section F). Examples in our guidance RG 244.18 In this regulatory guide, we have used a number of examples. These examples are for illustration and are confined to their particular facts. Different facts are likely to produce different results in terms of whether the law has been complied with. Other obligations for AFS licensees RG 244.19 Our guidance should be read in conjunction with our other guidance for AFS licensees on how you can comply with your obligations under Ch 7. Page 8 REGULATORY GUIDE 244: Giving information, general advice and scaled advice © Australian Securities and Investments Commission December 2012 Page 8 RG 244.20 If you are considering providing factual information and advice to your clients, you may also need to consider: (a) common law obligations, such as the duty of care and fiduciary duties; (b) contractual obligations; (c) compliance with relevant industry standards and codes; (d) regulatory requirements under the Corporations Act, including those in Ch 7 about licensing, disclosure obligations and the requirement to: (i) do all things necessary to ensure that you provide services efficiently, honestly and fairly; (ii) ensure adequate representative training; (iii) manage conflicts of interest; and (iv) maintain dispute resolution systems; (e) regulatory requirements under Div 2 of Pt 7.10 of the Corporations Act and the Australian Securities and Investments Commission Act 2001, which: (i) prohibit, among other things, misleading or deceptive conduct; and (ii) impose implied warranties in contracts for the supply of financial services; (f) where relevant, trustee duties and obligations under the Superannuation Industry (Supervision) Act 1993 and at common law; and (g) where relevant, responsible entity duties and obligations under Ch 5C of the Corporations Act for operating managed investment schemes. Some guiding principles for giving information, general advice and scaled advice RG 244.21 Our guidance aims to facilitate access to good quality personal advice by helping AFS licensees to provide scaled advice services, where this would be helpful to their clients RG 244.22 In our experience, AFS licensees that are currently offering scaled advice to clients have invested significant resources into training and setting up systems to ensure that the advice delivered complies with the law. Licensees should also consider using factual information or general advice to help customers better understand the products offeredfor example, the basic features of different products or current interests rates. RG 244.23 To assist AFS licensees that give information, general advice and/or scaled advice to their clients, Table 1 sets out some guiding principles in relation to the issues discussed in this guidance. These principles apply to information and advice about all financial products. Page 9 REGULATORY GUIDE 244: Giving information, general advice and scaled advice © Australian Securities and Investments Commission December 2012 Page 9 Table 1: Guiding principles for giving information, general advice and scaled advice Issue Guiding principles Giving factual information (see Section B) You can provide factual information to a client even if you have personal information about the client and use that information to determine what factual information to provide. Giving general advice (see Section C) You can provide general advice to a client even if you have personal information about the client. We will not consider general advice to be personal advice if you clarify with the client when you give the advice that you are not giving personal advice, and you do not in fact consider the client’s relevant circumstances (i.e. their objectives, financial situation or needs). We will not take action where you give personal advice merely because you give general advice using personal information about a client’s relevant circumstances to choose general advice that is relevant and useful to them (in certain circumstances, as discussed in Section C). Giving scaled advice (see Section D) Advice is provided along a continuous spectrum. You can scale all types of advice, including advice about complex issues. The inquiries you make, as an advice provider, will need to reflect the nature of the matters you are considering. Some points to consider when giving scaled advice are:  the rules that apply to ‘scaled advice’ and ‘comprehensive advice’ are identical;  scaled advice can include advice on a single topic or advice on multiple topics;  scaled advice is not lesser quality advice;  scaled advice does not mean that the advice provider who gives the advice can have lower training standards; and  while processes can be used to help you provide scaled advice, you need to use your expertise and skills as an advice provider to deliver good quality scaled advice. Communicating the service you are providing (see Section E) You must ensure that you communicate clearly to clients the service you are providing (i.e. information or advice). If you are giving scaled advice, you need to communicate clearly the advice you are providing and the advice you are not providing, and the implications of this. For example, when giving scaled advice, it should be very clear in your SOA (if you are required to give one) what advice you have provided and what advice you have not provided, the implications of this, and why you have taken this approach. We consider that scaled advice will be unlikely to meet the best interests duty and related obligations if the client does not understand any of the significant limitations or qualifications that apply to it. Delivering the information or advice (see Section F) The Corporations Act is neutral about technology. This means that you can give factual information and advice by telephone, email, internet, video conferencing, or face-to-face, or in any combination of these or other ways. The way we regulate advice is the same, regardless of the way you deliver the advice or how you scale the advice. This is because, in general, the same rules apply to all advice on the same topic, regardless of how it is delivered. However, different modes of communication may give rise to different challenges about whether a client understands the advice they are being given, and what the limits of the advice are. Page 10 REGULATORY GUIDE 244: Giving information, general advice and scaled advice © Australian Securities and Investments Commission December 2012 Page 10 B Giving factual information Key points You do not need to hold an AFS licence to give factual information to clients. This section gives guidance that: • providing good quality factual information is to be encouraged and can be a very useful service for consumers; • we will not consider factual information given by you to be financial product advice if you clarify with the client at the outset that you are providing factual information, and that the information is not intended to imply any recommendation or opinion about a financial product; • you can provide factual information to clients even if you have personal information about the client. We will not consider this to be personal advice merely because you have some personal information about your client; and • if you have personal information about a client, it is possible to adjust the factual information you give to that client to ensure that the information is relevant to them. Factual information or advice? What is factual information? RG 244.24 Factual information is objectively ascertainable information, the truth or accuracy of which cannot reasonably be questioned: see RG 36.21. Good quality factual information can often be useful for clients wishing to better understand the financial products or strategies available to them. RG 244.25 You do not need to hold an AFS licence to give factual information to clients. Note: For further discussion about the difference between factual information and financial product advice, see RG 36. Where necessary, we will be updating the guidance in RG 36 to ensure consistency with this regulatory guide. What is financial product advice? RG 244.26 Financial product advice generally involves a qualitative judgement aboutor an evaluation, assessment or comparison ofsome or all of the features of a financial product: see RG 36.18. RG 244.27 If a communication is a recommendation or a statement of opinion, or a report of either of these things, that is intended to, or can reasonably be regarded as being intended to, influence a client in making a decision about a Page 11 REGULATORY GUIDE 244: Giving information, general advice and scaled advice © Australian Securities and Investments Commission December 2012 Page 11 particular financial product or class of financial product (or an interest in either of these), it is financial product advice: s766B. Note: Giving a recommendation or opinion, or a report of either of those things, which is reasonably necessary as part of handling and settling an insurance claim is not providing financial product advice: see s766B(7A) and Information Sheet 253 Claims handling and settling: How to comply with your AFS licence obligations (INFO 253). RG 244.28 If you carry on a business in Australia of giving financial product advice that is a financial service, you do need to hold an AFS licence, unless an exemption applies. Example B1: Providing factual information about financial products on a website Scenario An organisation without an AFS licence includes on its website a list of financial products of a particular class available from third-party product providers, together with some objectively ascertainable factual information about specific product characteristics, with the aim of providing useful information for consumers to assist them to make a decision about the class of financial product. Commentary Because the information is factual and does not involve a qualitative judgement about, or an evaluation or assessment of, the features of the products, it is not financial product advice. Factual information is not general or personal advice RG 244.29 Factual information may be likely to be advice if it is presented in a way that is intended to, or can reasonably suggest or imply an intention to, make a recommendation about what a client should do: see RG 36.31. RG 244.30 We will not treat factual information given by you as general or personal advice if: (a) you clarify at the outset that you are giving the client factual information where there is a reasonable likelihood of doubt; and (b) the information is not intended to imply any recommendation or opinion about a financial product. RG 244.31 It is good practice to take reasonable steps to ensure that a client understands upfront that you are providing factual information, and not general or personal advice. This will avoid confusion and help the client to understand what service they are getting. However, if it is clear to the client that you are providing them with factual information, it is unnecessary to clarify that you are giving factual information: see Example 14 in the appendix. Page 12 REGULATORY GUIDE 244: Giving information, general advice and scaled advice © Australian Securities and Investments Commission December 2012 Page 12 RG 244.32 The appendix contains examples of giving factual information to clients about a range of issues: see Examples 1 and 4–14. See also Section E, which sets out guidance about communicating clearly with your client about the service you are providing. What if you have personal information about a client? RG 244.33 You can provide factual information even if you have personal information about a client. We will not consider this to be personal advice merely because you have some personal information about the client. RG 244.34 It is possible to adjust the factual information you give, using the personal information you have about the client, so that the factual information you provide to the client is relevant and useful to them. RG 244.35 The test for whether you are giving personal advice includes: (a) firstly, whether you are in fact giving financial product advice—that is, whether you are making a recommendation about a financial product (see RG 244.27 for the full definition); and (b) secondly, whether you have considered the client’s relevant circumstances in relation to giving or directing the advice, or whether a reasonable person might have expected you to do so (s766B(3)). RG 244.36 The test is not whether you merely possess information about the client’s relevant circumstances. Example B2: Providing factual information about an alternative financial product Scenario A client contacts an insurer’s call centre and requests a quote for comprehensive car insurance. Noting the client’s car is old and of low value, the call centre operator mentions the possibility of third party property damage cover and explains the difference between it and comprehensive cover. At the client’s request, the call centre operator provides a quote for the annual premiums for each product. Commentary This is factual information. Although the call centre operator has been provided with some personal information about the client, and has used this information to provide relevant information to the client about an alternative product, the operator has not given an opinion or made a recommendation that is intended to, or that could be reasonably regarded as being intended to, influence a decision about a financial product. Page 13 REGULATORY GUIDE 244: Giving information, general advice and scaled advice © Australian Securities and Investments Commission December 2012 Page 13 Example B3: Using personal information to ensure that the factual information you give is relevant to the client Scenario A client tells their adviser that they have recently lost their job, and they are worried about finding a new one. The client is 50 years old and struggling to pay their mortgage. The client asks if they will be able to access their superannuation early to assist with their mortgage repayments. The adviser provides details of the circumstances in which it may be possible for the client to access their superannuation early, in a case of ‘severe financial hardship’, and tells the client how they can apply to the Department of Human Services to stop foreclosure of their mortgage. The adviser also explains the implications of the client making such withdrawals from their superannuation (e.g. it will lead to a decrease in their retirement savings and tax may be payable). Commentary The adviser has used information about the client’s personal circumstances to ensure that the factual information given to the client is relevant and useful, without providing financial product advice. This example illustrates that, if you have personal information about a client, this will not, by itself, mean that the information you give them is personal advice. The type of information given by the adviser is factual because it is objectively ascertainable and offers no recommendation or statement of opinion intended to influence the client. Using personal information about clients in this way does not mean that advice is being provided. Instead, the adviser is using personal information to ensure that the factual information that is provided to the client is useful and relevant to the client. Page 14 REGULATORY GUIDE 244: Giving information, general advice and scaled advice © Australian Securities and Investments Commission December 2012 Page 14 C Giving general advice Key points If you hold an AFS licence, you can give general advice to clients, provided that you give a general advice warning under s949A(2). This section gives guidance that: • we will not consider general advice to be personal advice if you clarify with the client when you give the advice that you are not giving personal advice, and you have not considered the client’s relevant circumstances (i.e. their objectives, financial situation or needs) in giving the advice; and • we will not take action where you give personal advice merely because you give general advice using personal information about a client’s relevant circumstances to choose general advice that is relevant and useful to them (in certain circumstances, as discussed below: see RG 244.48–RG 244.49). If you are a financial product issuer, you do not need an AFS licence to give general advice about your products. This is because you can rely on the licensing exemption for product issuers in reg 7.1.33H of the Corporations Regulations (if you comply with the relevant conditions: see RG 244.42). Giving general advice under an AFS licence RG 244.37 As a general rule, if you carry on a business in Australia of giving general advice to clients that is a financial service, you must hold an AFS licence with an authorisation to give general advice, or be an authorised representative of such a licensee, unless an exemption applies. RG 244.38 If you are licensed to give general advice, you must warn the client that: (a) the advice has been prepared without taking into account their objectives, financial situation or needs; (b) the client should, therefore, consider the appropriateness of the advice, in light of their own objectives, financial situation or needs, before acting on the advice; and (c) if the advice relates to the acquisition, or possible acquisition, of a particular financial product, the client should obtain a Product Disclosure Statement (PDS) (if required) relating to the product and consider the PDS before making any decision about whether to acquire the product: s949A(2). RG 244.39 You do not need to follow the exact wording in s949A(2) to give a general advice warning: s949A(3). You can use your own words. What is required is that clients are warned about the items listed in RG 244.38, and that the warning is given to clients at the same time and by the same means as the advice is provided: s949A(3). Note: For further guidance about using your own words to give a general advice warning, see RG 175.64–RG 175.67. Page 15 REGULATORY GUIDE 244: Giving information, general advice and scaled advice © Australian Securities and Investments Commission December 2012 Page 15 RG 244.40 We have given relief to financial services providers to allow them to give a shorter, simpler general advice warning when they provide oral general advice: see ASIC Corporations (General Advice Warning) Instrument 2015/540. Under this relief, you only need to give a simplified warning once in any telephone conversation or face-to-face meeting when giving clients general advice. Licensing exemption for financial product issuers RG 244.41 If you are a financial product issuer, you do not need an AFS licence or authorisation to give general advice about the products you issue or the class of products you issue: reg 7.1.33H. RG 244.42 There are some conditions for this licensing exemption. You must: (a) advise the client that you are not licensed to give general advice about your product; (b) recommend that the person obtain a PDS, if appropriate, and read it before making a decision; and (c) if giving advice about the offer, issue or sale of a financial product, notify the client about the availability or otherwise of a cooling-off regime that applies to the acquisition of the product (or product of the same class or interest in the product): reg 7.1.33H(1)(c). General advice is not personal advice RG 244.43 Advice may be regarded as personal advice if it is presented in a way that means a reasonable person might expect you to have considered one or more of the client’s objectives, financial situation or needs: see RG 175.36. General advice about a financial product will not be personal advice if you clarify with the client at the outset that you are giving general advice, and you do not, in fact, take into account the client’s objectives, financial situation or needs. RG 244.44 When you are giving general advice to a client, in addition to giving a general advice warning, it is good practice to take reasonable steps to ensure that the client understands upfront that they are getting general advice and not personal advice. You should take reasonable steps to ensure that the client understands that you have not taken into account their objectives, financial situation or needs in giving the general advice. This will avoid confusion and help the client to understand the nature of the advice they are getting. Note: Examples 1 and 4–13 in the appendix show how an adviser can explain to the client that they are receiving general advice and not personal advice. RG 244.45 See also Section E, which sets out our guidance on communicating clearly with your client about the service you are providing. Page 16 REGULATORY GUIDE 244: Giving information, general advice and scaled advice © Australian Securities and Investments Commission December 2012 Page 16 What if you have personal information about a client? RG 244.46 If you have personal information about a client, this will not, by itself, mean that the general advice you give them is personal advice: see RG 175.51. RG 244.47 You can use personal information about a client to give general advice that is more relevant to a client. However, you must ensure that you do not, in fact, consider the client’s relevant circumstances when you prepare and give the general advice. If you do, you will be giving personal advice. You cannot avoid this by giving a general advice warning to the client. Example C1: Using personal information to ensure that the general advice provided is relevant to the client Scenario A superannuation fund would like to provide a brochure containing general advice about retirement planning issues to some of its members via a mailout. The general advice would be most relevant to members aged 55 and over. Commentary The fund can use personal information that they have about their members’ age to send the brochure to members who are 55 and over. Using the personal information about fund members in this way does not mean that the fund is providing personal advice. Instead, the fund is using personal information to provide general advice to a particular audience. Example C2: General insurance—Increasing excess Scenario A client calls an insurer to seek a quote for comprehensive car insurance for a new vehicle and indicates that they, their spouse and their adult children will all use the vehicle. The insurer provides a quote. The client indicates that the premium is more than they would like to pay and asks for advice on how to reduce the premium. The insurer outlines that it is possible to elect to reduce the premium by increasing the basic excess payable—and that this is a popular way of reducing insurance premiums— and the client decides to take up this option. Commentary In this example, the insurer does not inform the client about the option to reduce the premium by restricting the age of drivers for the vehicle—since the client has stated that their adult children, who are under 25 years of age, will be driving the vehicle. The insurer has used personal information about the client to give general advice that is relevant to the client. Page 17 REGULATORY GUIDE 244: Giving information, general advice and scaled advice © Australian Securities and Investments Commission December 2012 Page 17 Example C3: General insurance—Third party cover Scenario A client contacts an insurer’s call centre and requests a quote for the best value comprehensive car insurance. Noting that the client’s car is old and of low value, the call centre operator mentions the availability of third party property damage cover, and explains the difference between this and comprehensive cover. The client asks the call centre operator which policy would be best for them. The call centre operator says that, although they cannot provide advice about what is right for the client, generally third party property damage policies are a popular choice among people with older cars. At the client’s request, the call centre operator provides a quote for the annual premiums for each product. The client purchases the third party property damage policy. Commentary In this example, the insurer has been provided with some personal information about the client, and has used this information to identify an alternative product and provide more relevant general advice to the client. RG 244.48 We will not take action where you give personal advice merely because you give general advice using personal information about a client’s relevant circumstances to choose general advice that is relevant and useful to them. RG 244.49 This only applies if: (a) you do not, in fact, consider the client’s relevant circumstances when you prepare the advice; and (b) it is unlikely that the client would expect the advice provided to reflect a consideration of their relevant circumstances. Example C4: Interactive web-based program Scenario An interactive web-based application is promoted as providing advice about superannuation funds. The web interface includes a general advice warning. The program is designed to lead the user to one of a finite set of webpages containing recommendations about a superannuation fund. There is no reference in the advice to the superannuation fund being appropriate for the particular client. The website merely states that it is a good fund in general terms. The page that a user lands on depends on the answers to a set of detailed interactive questions about their relevant circumstances. Commentary In this example, the operator of the website does have personal information about the client when the recommendation is displayed. The personal information does not determine the content of the advice since all the advice is already on the website before the system is used. The provider considers the personal information only to determine which of the pages containing financial product advice the client is directed to. Page 18 REGULATORY GUIDE 244: Giving information, general advice and scaled advice © Australian Securities and Investments Commission December 2012 Page 18 However, this is personal advice. It would not be within ASIC’s no-action position because it is likely that the client would expect, from being asked for detailed personal information, that the provider is seeking information about all their relevant circumstances in order to make a recommendation that is appropriate for them. The presence of a general advice warning does not alter this. Page 19 REGULATORY GUIDE 244: Giving information, general advice and scaled advice © Australian Securities and Investments Commission December 2012 Page 19 D Giving scaled advice Key points All personal advice is ‘scaled’ or ‘limited in scope’ to some extent—advice is either less or more comprehensive in scope along a continuous spectrum. This section gives guidance that: • the same rules, including the best interests duty and related obligations, apply to all personal advice on a particular topic, regardless of the scope of the advice; • you must use your judgement and expertise as an advice provider to ensure that the scope of the scaled advice you provide meets your legal obligations, including the best interests duty and related obligations; • you can adjust the level of your inquiries about the client’s relevant circumstances to reflect the nature of the advice being provided; and • having appropriate processes in place to guide you when you give scaled advice will help you comply with the law, including the best interests duty and related obligations. Giving personal advice RG 244.50 Retail clients rely on personal advice and may suffer significant loss if the advice is not of good quality. For this reason, Div 2 of Pt 7.7A imposes specific obligations—collectively referred to in this guide as the best interests duty and related obligations—on persons who provide personal advice: (a) to act in the best interests of the client when providing them with personal advice (s961B); (b) to provide the client with appropriate advice (s961G); (c) to warn the client if the advice is based on incomplete or inaccurate information (s961H); and (d) to prioritise the interests of the client (s961J). Note: For further guidance on the best interests duty and related obligations, see our guidance in Section E of RG 175. RG 244.51 The obligations in Div 2 of Pt 7.7A generally apply to the individual providing the personal advice. In this guide, we refer to this person as the ‘advice provider’. This is in contrast to the obligations in Pt 7.7, which apply to the ‘providing entity’that is, the AFS licensee or authorised representative that provides financial product advice. Note: If there is no individual that provides the advice for the purposes of Div 2 of Pt 7.7A, which may be the case if advice is provided through a computer program, the legal person (e.g. a corporate licensee or authorised representative) that provides the advice is required to comply with the obligations in Div 2 of Pt 7.7A: s961. Page 20 REGULATORY GUIDE 244: Giving information, general advice and scaled advice © Australian Securities and Investments Commission December 2012 Page 20 RG 244.52 In addition, AFS licensees must take reasonable steps to ensure that their representatives comply with s961B, 961G, 961H and 961J: s961L. Note: The obligations in Div 2 of Pt 7.7A apply from 1 July 2013 unless an AFS licensee elects to comply with Pt 7.7A earlier by lodging a notice with ASIC: Form FS92 Notification of intention to comply with Future of Financial Advice provisions. If Div 2 of Pt 7.7A does not apply, the obligations in s945A and 945B will apply to the licensee and its authorised representatives until 1 July 2013: see the attachment to RG 175. How this guidance relates to our guidance in RG 175 about the best interests duty RG 244.53 We have updated RG 175 to include guidance on complying with the best interests duty and related obligations. RG 244.54 It is important to note that the same rules apply to all personal advice on a particular topic: there are not two sets of rulesone for ‘comprehensive’ advice, and one for ‘scaled’ advice that is more limited in scope: see also RG 175.393. RG 244.55 This means that the guidance in RG 175 about complying with the best interests duty and related obligations is relevant and useful for those who are providing, or are considering providing, scaled advice. RG 244.56 This guide provides specific and practical guidance and examples about complying with the best interests duty and related obligations when you are giving scaled advice. We have set out below guidance about the aspects of the best interests duty that are most relevant to consider when you are giving scaled advice. RG 244.57 This guidance does not discuss in detail our guidance on the best interests duty and related obligations generally. For further information on how to comply with these obligations, see Section E of RG 175. Scaled advice that complies with your legal obligations, including the best interests duty RG 244.58 You can give scaled advice that is limited in scope that meets your legal obligations. This is because what you must do to meet the legal requirements, including the best interests duty and related obligations, can be ‘scaled up’ or ‘scaled down’ depending on the nature of the advice. Note: One of the key objectives of the FOFA reforms is to improve access to good quality advice by facilitating scaled advice: see Future of financial advice Information pack, 28 April 2011. RG 244.59 When you are considering how the best interests duty and related obligations apply in the context of giving scaled advice, remember that: Page 21 REGULATORY GUIDE 244: Giving information, general advice and scaled advice © Australian Securities and Investments Commission December 2012 Page 21 (a) all advice is scaled to some extentadvice is either less or more comprehensive in scope along a continuous spectrum (i.e. there are not two categories of advice: ‘scaled’ and ‘comprehensive’ advice); and (b) the same rules apply to all personal advice on the same topic, regardless of the scope of the advice. Scaled advice does not equate to lesser quality advice for clients or lower training standards for advice providers. All advice providers who give personal advice, whether scaled or more comprehensive, must meet the training requirements in Regulatory Guide 146 Licensing: Training of financial product advisers (RG 146). RG 244.60 You can give scaled advice: (a) if your AFS licence authorises you to provide advice that is broader in scopefor example, you have multiple authorisations on your licence for financial products about which you can give advice; (b) to existing, new and potential clients. You may need to ask a new client more questions about their relevant circumstances to ensure you have sufficient information on which to base your advice. You need to make sure that the information you have about the relevant circumstances of existing clients is up to date; and (c) to the same client, on multiple occasions, including after having previously given the client relatively comprehensive advice, general advice or factual information. Note: See Examples 1 and 14 in the appendix, which provide an illustration of a client receiving factual information and advice about the same issue on different occasions from the same adviser. Practical guidance and examples about complying with the best interests duty when you are giving scaled advice RG 244.61 Section 961B(1) requires that advice providers act in the best interests of their clients in relation to the advice given. Section 961B(2) provides a ‘safe harbour’ that advice providers may rely on to prove that they have complied with s961B(1). If an advice provider can show they have taken the steps in s961B(2), they are considered to have met the best interests duty. RG 244.62 Consumers who seek financial advice, including scaled advice, expect that the advice provided will leave them in a better position. RG 244.63 When assessing whether an advice provider has complied with the best interests duty, we will consider whether a reasonable advice provider would believe that the client is likely to be in a better position if the client follows the advice provided. For further detail, see RG 175.228–RG 175.235. Note: Leaving a client in a better position can include providing the client with advice that is not product specific. This might include the advice to do nothing: see RG 175.238(d). Example 3 in the appendix of this regulatory guide illustrates this concept. Page 22 REGULATORY GUIDE 244: Giving information, general advice and scaled advice © Australian Securities and Investments Commission December 2012 Page 22 RG 244.64 We have set out in Table 2 some guidance to assist you in meeting the requirements of the best interests duty and related obligations when you are giving scaled advice. It includes a summary of some issues that we think are important for advice providers to consider when they are giving scaled advice to clients. We have also provided some examples from our regulatory experience, including from REP 279. Note: In addition to the general best interests duty, there is a modified set of obligations (modified best interests duty) that apply when an advice provider gives advice about basic banking products only or general insurance products only (s961B), or gives advice about a combination of basic banking and general insurance products, or general insurance and other products (reg 7.7A.1). How the best interests duty applies to basic banking and general insurance products is set out in RG 175.247–RG 175.250. We have also provided examples in the appendix to illustrate how you can meet the modified best interests duty when giving scaled advice: see Examples 12 and 13. Table 2: What advice providers can do to help ensure they meet their legal obligations, including the best interests duty and related obligations, when giving scaled advice As an advice provider, you will … What this means in summary For further guidance Use your judgement and training to decide whether, by limiting the scope of the advice, you can provide scaled advice that meets your legal obligations. In many cases, you can give scaled advice that is more limited in scope (e.g. for certain advice about less complex issues and for clients with less complex relevant circumstances) and comply with your legal obligations, including the best interests duty and related obligations. Either you or your client can suggest limiting or revising the subject matter of the advice. However, you (as the advice provider) must use your judgement when deciding on the scope of the advice. You must determine the scope of advice in a way that is consistent with the client’s relevant circumstances and the subject matter of the advice they are seeking. See RG 244.65– RG 244.68 and RG 175.261– RG 175.280 Adjust the level of your inquiries to reflect the nature of the advice being provided. To meet the safe harbour for the best interests duty, you must identify the client’s relevant circumstances. You can adjust the fact-finding process (i.e. the inquiries you make about the client’s relevant circumstances) to be either limited or expanded. For example, when a client’s relevant circumstances are straightforward, the scale of your inquiries may be quite limited. In general, as the complexity of a client’s relevant circumstances increases, it is likely that you will need to expand the scale of your inquiries. See RG 244.69– RG 244.73 and RG 175.281– RG 175.297 Implement systems that will help you decide whether scaled advice can be provided to a client in a way that meets your legal obligations. One approach you can use when deciding if you can provide a client with a limited scope of advice is to perform a ‘triage’ or filtering process. For example, we would expect you to ask a series of questions to determine how advice that is limited in scope can be provided to a client in a way that complies with your legal obligations, including the best interests duty and related obligations. See RG 244.74– RG 244.80 and RG 175.236– RG 175.241 Page 23 REGULATORY GUIDE 244: Giving information, general advice and scaled advice © Australian Securities and Investments Commission December 2012 Page 23 As an advice provider, you will … What this means in summary For further guidance Communicate clearly to the client the type of advice service you are offering. You must take reasonable steps to explain to a client the limited scope of the advice you are giving in a way that will be clear to the client. For example, this could involve explaining the scope of your advice to them, and that you will not be considering any other issues. This will help the client understand what advice they are getting and ensure there is no misunderstanding about what they are, and are not, being advised on. It is also good practice to give a simple and accurate explanation about why the scope of the advice has been limited. See Section E Advice providers can give scaled advice RG 244.65 Section 961B(2)(b)(i) of the safe harbour for meeting the best interests duty requires an advice provider to identify the subject matter of the advice that has been sought by the client (whether explicitly or implicitly). It is possible to limit the scope of advice within this subject matter to a single issue. Either you or your client can suggest limiting the subject matter of your advice. However, you must use your judgement when deciding on the scope of the advice. As an advice provider, you must determine the scope of advice in a way that is consistent with your client’s relevant circumstances and the subject matter of the advice they are seeking: see RG 175.265. Note: The note to s961B(2) states that advice providers can give scaled advice: see RG 244.71 for further details. Examples about limiting the scope of the advice RG 244.66 We have set out below a number of examples to illustrate the principles discussed above. Many of these examples are drawn from our experience in preparing REP 279. RG 244.67 The first of these examples is consistent with feedback from industry that clients often seek advice in response to a life event, and this is how the request for advice is framed. If the subject matter of advice sought by the client is implicit, you will need to discuss with your client the subject matter of the advice that they are seeking. Example D1: Implicit and explicit request for personal advice Scenario A client visits their financial planner and requests advice about retirement planning. The planner asks the client a series of questions to determine what advice the client would like, because a request for ‘retirement planning advice’ may be an implicit request for advice on a range of topics, including whether the client will have enough income to retire at a certain age, consideration of a transition-to-retirement (TTR) strategy, what pension product the client should purchase, and whether the client should pay down debts before they retire. Page 24 REGULATORY GUIDE 244: Giving information, general advice and scaled advice © Australian Securities and Investments Commission December 2012 Page 24 Commentary It is unclear from the client’s initial request what advice the client is seeking. For the planner to be able to identify the subject matter of the advice the client is seeking, they need to ask further questions to determine whether the client would like a more comprehensive financial plan for retirement, or whether scaled advice with a more limited scope could meet their needs (e.g. they want an answer to a specific question about retirement). Example D2: Personal advice on a single issue Scenario A client sees an adviser because they want to increase their wealth. The adviser recommends an investment strategy. In doing so, the adviser discusses the risk of the client losing their income and assets, which could affect the client’s ability to increase their wealth. The adviser is not skilled in the area of risk insurance (e.g. life insurance or income protection insurance), and notifies the client of this fact. Restricting the scope of the advice to exclude consideration of risk insurance products would not meet the best interests duty and related obligations. The adviser refers the client to a specialist risk adviser. The client agrees to seek the specialist risk advice and make a final decision about whether to implement the investment strategy after considering the specialist advice. Commentary The adviser has acted in the best interests of the client by giving the client advice on the subject matter they requested and, in addition, identifying another subject matter of advice that it would be in the best interests of the client to receive, and referring the client to a specialist adviser to seek advice on this issue. Example D3: Declining to give scaled advice Scenario An adviser working for ABC Superannuation Ltd is dealing with a client who is a member of the superannuation fund operated by XYZ Superannuation Ltd. The client asks for advice about whether to switch to the superannuation fund operated by ABC Superannuation Ltd. The client says they want to pay lower fe