ASIC RG 90 — ASIC Regulatory Guide – RG 90 Example Statement of Advice: Scaled advice for a new client

Page 1 REGULATORY GUIDE 90 Example Statement of Advice: Scaled advice for a new client December 2017 About this guide This guide is for Australian financial services (AFS) licensees, authorised representatives and advisers who give personal advice to retail clients. It explains how and why we have developed an example Statement of Advice (SOA) for scaled advice (i.e. personal advice that is limited in scope) on personal insurance for a new retail client. The example SOA was developed in consultation with stakeholders, and we acknowledge their valuable contribution throughout the process. Page 2 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 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 2017 and is based on legislation and regulations as at the date of issue. Previous versions:  Superseded Regulatory Guide 90, issued August 2013  Superseded guide Example Statement of Advice (SOA) for a limited financial advice scenario for a new client, issued August 2005, rebadged as a regulatory guide 5 July 2007 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 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 3 Contents A Overview .................................................................................................4 Scope of this guide ..................................................................................4 Aims of the example SOA........................................................................6 Design and structure of the example SOA ..............................................7 Financial advice scenario ........................................................................8 B Aims of the example SOA .....................................................................9 Legislative requirements ..........................................................................9 Purpose of an SOA ................................................................................10 Other communications with a client .......................................................12 C Design and structure of the example SOA........................................14 Design and layout ..................................................................................14 Key sections of the example SOA .........................................................16 What is not included in the example SOA .............................................21 Key terms .....................................................................................................23 Related information .....................................................................................27 Appendix 1: Financial advice scenario for example SOA .......................28 Appendix 2: Example SOA .........................................................................30 Page 4 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 4 A Overview Key points The focus of this guide is the example Statement of Advice (SOA) in Appendix 2. The example SOA is based on a hypothetical limited financial advice scenario for personal insurance. It illustrates how an adviser can produce a compliant SOA that is concise, is structured in a way that is easy to follow and is written in simple, plain language. The example SOA has been developed in line with our increasing use of behavioural research to understand regulatory problems. Our aim is to provide guidance to help make SOAs more effective and easier for retail clients to read and understand, as well as to assist advisers to make better use of SOAs. It is not designed to illustrate what we would consider to be the best advice in this scenario. Scope of this guide RG 90.1 The focus of this guide is the example SOA in Appendix 2. This example SOA is based on a hypothetical financial advice scenario described in Appendix 1. The example SOA provides an example of scaled advice (i.e. personal advice that is limited in scope) about personal insurance— including life and total and permanent disability (TPD) cover, income protection insurance and trauma insurance—for a new client. Note: In this guide, we have used the term ‘client’ to refer to a ‘retail client’. RG 90.2 This guide briefly sets out the aims of the example SOA, highlights the various sections of the example SOA, and explains what these sections contain and why. RG 90.3 The example SOA illustrates how an adviser can produce a compliant SOA that is clear, concise and effective. It is structured in a way that is easy to follow and written in simple, plain language. RG 90.4 The example SOA has been developed in line with our increasing use of behavioural research to understand regulatory problems and, in some cases, design and refine solutions for them. RG 90.5 We designed the example SOA based on what we think is good disclosure practice (not best disclosure practice) for an SOA dealing with such a financial advice scenario. Page 5 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 5 RG 90.6 While the example SOA has been prepared for a personal insurance advice scenario, we have tried to create an example that can be adapted to other financial advice scenarios. We therefore encourage advisers to use the example SOA as a model for other SOAs. RG 90.7 We suggest that advisers consider the style, content and layout of the example SOA in light of the particular SOA they are producing. We recognise that the style, content, layout and length of an SOA will vary depending on various matters, including the scope and complexity of the advice. The example SOA is not intended to be used as a template, so it is unlikely that an adviser could use it without modification. RG 90.8 You may reproduce all or any part of the example SOA, in hard copy and/or in electronic format, without asking for permission from ASIC. RG 90.9 For further example SOAs, see the appendix to Regulatory Guide 244 Giving information, general advice and scaled advice (RG 244). The examples in RG 244 are designed to illustrate the differences between giving factual information, general advice and scaled advice. RG 90.10 Our general approach to compliance with the SOA requirements is set out in Section D of Regulatory Guide 175 Licensing: Financial product advisers— Conduct and disclosure (RG 175). RG 90.11 Regulatory Guide 221 Facilitating digital financial services disclosures (RG 221) explains our approach to facilitating digital disclosure. We encourage advisers to explore more innovative forms of disclosure and, where advisers are concerned that there are remaining regulatory barriers, we are open to granting individual relief to facilitate the use of these kinds of disclosure where they are consistent with our Good Disclosure Principles set out in Section C of Regulatory Guide 168 Disclosure: Product Disclosure Statements (and other disclosure obligations) (RG 168). RG 90.12 We have also provided—in the appendix to Report 413 Review of retail life insurance advice (REP 413)—a checklist of matters that advisers should consider when giving life insurance advice. This checklist includes guidance about how to communicate the advice in an SOA. RG 90.13 We will continue to assess SOAs against the existing law and our current guidance. The example SOA is an illustrative aid. As stated above, we encourage advisers to consider it as a model when preparing their own SOAs. However, we do not intend to assess any SOAs against the example SOA in a compliance review. Page 6 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 6 Aims of the example SOA RG 90.14 The purpose of an SOA is to communicate to the client important and relevant information about the advice being provided to enable the client to make an informed decision about whether to act on the advice. RG 90.15 Section B of this guide sets out the legislative requirements that apply to SOAs, and what we think should be included in an SOA to enable a client to make an informed decision about whether to act on the advice. RG 90.16 The example SOA and this guide are underpinned by our current guidance on SOA requirements, including the requirement for clear, concise and effective disclosure. The design of the example SOA has also been based on insights from behavioural research into how people find and understand the information in SOAs. The language, structure, content and length of the example SOA are designed to make it a relatively simple and effective communication tool. RG 90.17 We have developed the example SOA as a communication tool that sets out and explains the advice. It has not been designed for use as: (a) a compliance tool; (b) a mechanism to protect the providing entity against liability; Note: A ‘providing entity’ is the person to whom the obligations in Pt 7.7 of the Corporations Act 2001 (Corporations Act) apply. This is the Australian financial services (AFS) licensee or authorised representative that provides the financial product advice. (c) a complete record of all information that you would expect to find in the client file (i.e. the information kept about the advice provided to the client); or (d) a place to include additional information not required by law (e.g. educational material, which may be attached or provided separately). RG 90.18 The example SOA also provides an example of scaled advice. It demonstrates how an adviser can clearly communicate the scope of such advice. For more guidance about giving scaled advice, see RG 244. RG 90.19 We developed the example SOA on the basis that the adviser in our financial advice scenario is maintaining information on a client file, and that this file shows that the adviser has met the best interests duty and related obligations in Div 2 of Pt 7.7A of the Corporations Act. Note: See RG 90.37–RG 90.39 for a description of the record-keeping obligations that apply when giving personal advice to clients. RG 90.20 Clients and their advisers will discuss a broad range of matters over the course of their relationship. While these matters may provide context and Page 7 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 7 background for the advice, not all this information should be in the SOA. Information can be communicated to the client in other ways: see RG 90.43. Design and structure of the example SOA RG 90.21 Section C of this guide explains in detail the design and structure of the example SOA. We describe what each section of the example SOA contains and explain why this information has been included. Table 1 summarises the sections included in the example SOA. Table 1: Key sections of the example SOA Section Purpose Front cover The front cover sets out basic information—such as the name of the adviser and their contact details—that the clients need to know before they read the contents of the SOA. It explains what the SOA is about, and why clients should read it. Table of contents The table of contents helps clients navigate the document. We consider a table of contents to be particularly useful if an SOA is more than 10 pages long. Summary of my insurance recommendations and commissions This section provides an overview of the adviser’s recommended insurance products and commissions. It refers clients to key sections of the SOA for more information about these topics. Note: The SOA should also disclose any fees or costs associated with the advice and, if these apply, this should be reflected in the heading to this section. What you want This section outlines the adviser’s understanding of the clients’ insurance preferences and needs. What you should know about my advice This section sets out the limits on the advice (i.e. the scope) and other key information the clients need to know about the advice. About you: Brad and Zara This section summarises details from the clients’ personal and financial profile, which the adviser has gathered to understand their needs and what is required to meet those needs. My advice This section sets out the adviser’s recommendations for meeting the clients’ needs, as identified in the ‘What you want’ section. Reasons for my recommendations This section explains why the advice is in the clients’ best interests and is appropriate in light of their financial circumstances and objectives. Consequences of my advice This section sets out the financial consequences and risks of the advice. How to follow my advice This section outlines the steps the clients need to take if they wish to follow the advice. My commissions This section sets out any commissions the adviser and their AFS licensee would receive if the clients decide to act on the advice. Note: If there are any fees or costs associated with the advice, this should be made clear in the heading to this section. Page 8 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 8 Section Purpose Authority to proceed It is generally industry practice to include some kind of document giving the adviser an ‘authority’ to proceed with the advice. We have included this authority, together with a checklist of important things the clients should make sure they have done before acting on the advice. RG 90.22 The last part of Section C of this guide sets out what is not included in the example SOA and why. The types of information we have not included are: (a) disclaimers and warnings; (b) financial product information; (c) financial services provided; and (d) additional information not material to the advice or the basis of the advice. Financial advice scenario RG 90.23 We have designed the example SOA based on a hypothetical and limited financial advice scenario for personal insurance (i.e. one that does not require a full financial plan). RG 90.24 The advice scenario deals with Brad and Zara—a married couple with two young children—who have asked a financial planner, Sally Chong, to advise them on personal insurance cover in the event of death or disability, taking into account their current income and assets. This scenario is set out in more detail in Appendix 1. RG 90.25 The advice we developed is one of a number of possible outcomes. While we have tried to ensure that the financial advice scenario is as realistic as possible, we recognise that there might be disagreement with some aspects of the scenario. The example SOA in Appendix 2 is not designed to illustrate what we would consider to be the best advice in this scenario. Page 9 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 9 B Aims of the example SOA Key points The example SOA, together with this guidance, is intended to help advisers produce a relatively simple and effective SOA that complies with the SOA requirements in Pt 7.7 of the Corporations Act. This section sets out the relevant legislative requirements, and provides a brief overview of how the best interests duty affects the content of SOAs: see RG 90.29–RG 90.31. In preparing an SOA, we consider that the presentation requirements (i.e. structure, layout and language) are as important as the content requirements. This is why we have used insights from behavioural research to improve the way our example SOA communicates information to clients. It is particularly important to ensure that SOAs are not too long or complicated because this detracts from client understanding. Although an adviser is likely to consider and discuss a broad range of matters with the client, not all this information needs to be in the SOA: see RG 90.40–RG 90.43. Legislative requirements RG 90.26 We consider that the example SOA will help advisers comply with the SOA requirements in Pt 7.7 of the Corporations Act. RG 90.27 Under s947B, 947C and 947D, an SOA must contain: (a) a statement setting out the advice (see s947B(2)(a) and 947C(2)(a)); (b) information about the basis on which the advice is or was given (see s947B(2)(b) and 947C(2)(b)); (c) a statement setting out the name and contact details of the providing entity and, where relevant, the authorising AFS licensee (see s947B(2)(c) and 947C(2)(c)–(d)); (d) information about remuneration, commissions and other benefits capable of influencing the providing entity in providing the advice (see s947B(2)(d) and 947C(2)(e)); (e) information about any other interests, associations or relationships that might be expected to be or have been capable of influencing the providing entity in providing the advice (see s947B(2)(e) and 947C(2)(f)); (f) where the personal advice is based on incomplete or inaccurate information, a statement setting out the warning required by s961H (see s947B(2)(f)) and 947C(2)(g)); and Page 10 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 10 (g) where the personal advice recommends the replacement of one financial product with another financial product (also known as ‘switching advice’), the additional information required by s947D. Note: Under s947B(2)(g) and 947C(2)(h), an SOA must also contain any other statements or information required by the Corporations Regulations 2001 (Corporations Regulations). Currently, there are no requirements other than those specified above. RG 90.28 These requirements are subject to two general limitations, as set out in Table 2. Table 2: General limitations on the SOA requirements Limitation Description Level of detail The level of detail for each matter is generally what a person as a retail client would reasonably require to make a decision about whether to act on the advice: see s947B(3) and 947C(3). Clear, concise and effective The statements and information in an SOA must be worded and presented in a clear, concise and effective manner: see s947B(6) and 947C(6). Note: For guidance on clear, concise and effective disclosure, see RG 175.203–RG 175.207 in RG 175. RG 90.29 Part 7.7A of the Corporations Act contains a series of obligations that financial advisers must meet in providing advice. These are designed to reduce conflicts of interest and ensure the adviser gives priority to their clients’ interests and provides advice of sufficient quality. RG 90.30 Under Div 2 of Pt 7.7A, financial advisers must comply with a best interests duty when providing personal advice to clients. This duty requires advisers to act in the best interests of their clients and to place the interests of their clients ahead of their own: see s961B(1) and 961J(1). RG 90.31 An adviser is deemed to have satisfied the best interests duty in s961B(1) if they can prove they have taken the steps set out in s961B(2)—referred to in RG 175 as the ‘safe harbour’. One way for an adviser to demonstrate they have satisfied the best interests duty is to ensure that the client file reflects that the adviser has taken these ‘safe harbour’ steps. However, this is not the only way an adviser may demonstrate they have acted in the best interests of a client. Note: See Section E of RG 175 for more guidance on our expectations for complying with the best interests duty and related obligations. Purpose of an SOA RG 90.32 The purpose of an SOA is to communicate to the client important and relevant information about the advice so they can make an informed decision about whether to act on the advice. The example SOA and this guide are Page 11 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 11 underpinned by our current guidance on the SOA requirements, including the requirement for clear, concise and effective disclosure. The design of the example SOA has also been influenced by behavioural insights and primary research on how people find and use information in SOAs. Note: See Section D of RG 175 and the Good Disclosure Principles in Section C of RG 168. RG 90.33 As outlined in RG 175, we consider that an SOA should clearly, concisely and effectively summarise, for the benefit of the client: (a) the advice; (b) the reasoning that led to the advice, including: (i) the subject matter of the advice sought by the client; (ii) the scope of the advice; (iii) a concise summary of the client’s relevant circumstances, as ascertained after making the inquiries required by s961B; (iv) a generic description of the range of financial products, classes of financial product or strategies considered and investigated for the purposes of s961B; (v) an explanation of why the advice and recommendations were considered appropriate, including in light of the alternative options considered, and the advantages and disadvantages (including risks) for the client if they follow the advice; and (vi) an explanation of how the adviser has acted in the client’s best interests. We consider that it is good practice to set out the basis on which a reasonable adviser would believe that the advice is likely to leave the client in a better position if the client follows the advice. Note: For further guidance on preparing and providing an SOA, see Section D of RG 175. RG 90.34 Consistent with this purpose, we have developed the example SOA as a communication tool that sets out and explains the advice. It has not been designed for use as: (a) a compliance tool; (b) a mechanism to protect the providing entity against liability; (c) a complete record of all the information that you would expect to find in the client file (i.e. the information kept about the advice provided to the client); or (d) a place to include additional information not required by law (e.g. educational material, which may be attached or provided separately). Note 1: For more detail about the design of the SOA, see Section C of this guide. For guidance on preparing and providing suitable personal advice, see Section B of RG 175 and Sections D–F of RG 244. For guidance on including additional information in an SOA, and the clear, concise and effective disclosure requirement, see RG 175.203– RG 175.207 of RG 175. Page 12 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 12 RG 90.35 We have developed the example SOA on the basis that the adviser in our financial advice scenario is maintaining information on a client file. This client file should show the steps that the adviser has taken to satisfy the best interests duty and related obligations in Div 2 of Pt 7.7A. RG 90.36 We have not included in the example SOA all of the information that we would usually expect to find in the client file. For instance, the example SOA does not include information about the alternative financial products or strategies that were considered but rejected by the adviser in providing the advice. However, we would expect this information to be clearly set out in the client file. Record-keeping obligations RG 90.37 An AFS licensee must ensure that records of advice are kept for a period of at least seven years after the day the personal advice is provided to the client. Class Order [CO 14/923] Record-keeping obligations for Australian financial services licensees when giving personal advice modifies Div 3 of Pt 7.6 of the Corporations Act, as it applies to all AFS licensees, to insert a new section—s912G—which sets out the record-keeping requirements for licensees when the licensee or its representatives (including advisers) give personal advice to clients. RG 90.38 Section 912G(2)(c) requires that, when an AFS licensee or its representative provides personal advice to clients, the licensee must ensure that records are kept of the advice given. This includes an obligation to keep copies of SOAs. Note: We have provided guidance on the record-keeping obligations in Section D of RG 175. RG 90.39 The information we require to be kept, under the record-keeping obligations, will help to demonstrate that the adviser has satisfied the best interests duty and related obligations. Other communications with a client RG 90.40 It is important to remember that an SOA forms only one part of the advice process. In developing the example SOA, we considered what information could be excluded, based on both the disclosure requirements and the purpose of the SOA in the context of the whole adviser–client relationship. RG 90.41 The SOA is intended to communicate to the client specific information at a particular point in time. Over the course of their relationship, an adviser and client will generally consider and discuss a broad range of matters that help provide the background to (and eventual basis for) the advice that is provided. Page 13 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 13 RG 90.42 Some of these matters include: (a) the client’s personal circumstances (including their risk tolerance), financial situation, and goals and objectives; (b) financial concepts, including the concept of risk and return and what this means for asset allocation when investing; (c) the financial services that the providing entity is authorised to provide (including the cost of those services and any limitations that apply to those services); (d) information about financial strategies and financial products; and (e) the advice itself (including its cost, the advantages and disadvantages, and the alternative financial products and strategies that were considered by the adviser). RG 90.43 While these matters may provide context and background for the advice, not all this information needs to be in the SOA. Information about these matters could be provided to the client in: (a) other documents, including the Financial Services Guide (FSG), Product Disclosure Statements (PDSs), promotional literature and educational material; (b) verbal communications, such as face-to-face meetings and telephone conversations; and (c) other written communications, such as emails and letters. Note: For more information about what has not been included in the example SOA, see RG 90.83–RG 90.93. Page 14 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 14 C Design and structure of the example SOA Key points This section explains in detail the design and structure of the example SOA, and describes what each section contains and why. The example SOA has been designed to make it as easy as possible for clients to understand and navigate. The design also takes into account any technical constraints that an adviser may face in adapting the example SOA to different personal advice scenarios. It has been created in a basic word-processing package, using simple design and layout techniques that should be available to all advisers. In keeping with the requirement for clear, concise and effective disclosure, the example SOA does not contain any information that does not need to be in an SOA. For example, the body of the example SOA does not contain standard disclaimers or warnings, financial product information, advertising material or educational information. Design and layout RG 90.44 We have used simple design and layout techniques in the example SOA (e.g. headings, tables and bullet points) to help highlight key information and make the document easier to read and navigate. RG 90.45 We have deliberately used language that is simple and easy to understand. Our aim was to develop a communication tool that can be understood by anyone seeking personal insurance advice, regardless of their previous level of understanding about insurance products. RG 90.46 We have used the following strategies to make the SOA easier to read and understand: (a) where possible, technical words and phrases have been replaced with more commonly understood terms; (b) where legal or technical terms have been used, their meaning and implications are explained in simple, plain language; (c) acronyms and abbreviations have only been used where necessary and are defined at the first point of usage; (d) short, simple sentences have been used, with no complex sentence structures; Page 15 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 15 (e) where possible, tables and bullet points have been used to break up the text and present information in a clear, accessible way, and to make it easier for clients to find and compare information; and (f) different types of information have been identified and separated into two ‘voices’, using a different style to represent each voice: (i) the first ‘voice’ (in normal text) is the voice of the adviser and sets out key information, facts and recommendations; and (ii) the second ‘voice’ (in italics with an arrow bullet) provides further explanation or expands on the implications of what the first voice has said. RG 90.47 In addition, some repetition has been employed throughout the example SOA, based on the knowledge that many people do not read these types of documents from cover to cover. Some people may only skim the document and/or engage with specific sections. For these people, the table of contents allows them to find the information they want and only read that information. Some repetition has been necessary to make each section make sense by itself. RG 90.48 The example SOA has been designed in accordance with the principles of the Web Content Accessibility Guidelines (WCAG) 2.0, which apply to all material published on Australian Government websites. This ensures that the document can be accessed and understood by people with disabilities, including those using assistive technologies such as screen readers. RG 90.49 We note that SOAs are challenging documents for clients. We would expect the adviser to talk through the SOA with the client as part of the advice process. RG 90.50 In our view, the structure of the example SOA reflects the process of giving advice, including a discussion of: (a) the clients’ goals and objectives; (b) what the advice does and does not cover (i.e. its scope); (c) the clients’ personal circumstances and financial situation; (d) the advice; Note: The example SOA does not include detailed information about the alternative financial products or strategies that were considered but do not form part of the final recommendations given by the adviser. However, we would expect this information to be recorded on the client file in accordance with the record-keeping obligations: see RG 90.37–RG 90.39. (e) why the advice is in the clients’ best interests and appropriate; (f) the financial consequences and risks of the advice, including the consequences of replacing one financial product with another; (g) what the clients should do to follow the advice; and Page 16 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 16 (h) the commissions associated with the advice—these have also been summarised in the ‘Summary of my insurance recommendations and commissions’ section in order to strengthen the remuneration disclosure. RG 90.51 The design of the example SOA also takes into account any technical constraints that an adviser may face in adapting the SOA to different personal advice scenarios. The example SOA has been formatted in a common word-processing package that should be available to all advisers. Key sections of the example SOA Front cover RG 90.52 The front cover sets out the basic information that the clients need to know before they read the contents of their SOA. This includes: (a) the fact that the document is called a Statement of Advice; (b) the name of the adviser and their contact details; (c) the name of the authorising AFS licensee and its contact details; and (d) a description of what the document is about. RG 90.53 We have also provided a list of attached PDSs for the financial products that have been recommended. Table of contents RG 90.54 The table of contents helps clients to navigate the document. Summary of my insurance recommendations and commissions RG 90.55 This section provides a short summary of the adviser’s individual insurance recommendations for Brad and Zara and the associated commissions. It refers the clients to key parts of the SOA for more details about these topics. RG 90.56 The summary of the commissions has been included in this section to illustrate how an adviser can provide prominent, upfront disclosure of commissions: see also RG 90.76–RG 90.80. Note: The SOA should also disclose any fees or costs associated with the advice and, if these apply, this should be reflected in the heading to this section. RG 000.57 In addition, we have included a heading for ‘Conflicts of interest’, under which any other interests, associations or relationships that might be expected to be or have been capable of influencing the advice should be disclosed. Page 17 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 17 What you want RG 90.58 This section summarises the adviser’s understanding of the clients’ needs and preferences. It broadly outlines the clients’ combined goals and objectives, as described by Brad and Zara, including their priorities and attitudes to risk. What you should know about my advice RG 90.59 This section outlines the scope of the advice and other key information the clients need to know about the advice. RG 90.60 It highlights limits on the advice and reminds the clients that the adviser can provide them with further advice, if they want it, at an additional cost. This gives the clients enough information to make them aware of other matters they might need to consider in the future. We have deliberately drafted this information so it is not a disclaimer or warning. RG 90.61 We have also included an expiry date for the advice, which is 30 days after the SOA is issued, to highlight that the advice has a time limit and that the clients should not act on the advice after a certain date. It is important for the clients to know that the advice is only appropriate for them at this point in time, based on their current personal circumstances and financial situation, and other factors such as the financial products currently on the AFS licensee’s approved product list. About you: Brad and Zara RG 90.62 This section summarises details from the clients’ personal and financial profile that are relevant to the advice being provided and the basis for the advice. RG 90.63 While the client file would contain more detailed information about the clients’ personal circumstances and financial situation, we did not consider it necessary to include all of this information in the example SOA. We recognise that the level of relevant personal and financial information included in an SOA may vary depending on the scope and complexity of the advice being sought and the circumstances of the particular client. RG 90.64 The information in the ‘About you’ section of the example SOA has been organised under separate headings, as set out in Table 3. Table 3: Headings used in the ‘About you’ section of the example SOA Heading Explanation Personal details This section summarises the clients’ relevant circumstances. Page 18 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 18 Heading Explanation What you own and what you owe This section sets out the clients’ existing assets and liabilities. What you earn each year This section outlines the clients’ individual and combined earnings after tax and benefits. What you spend each year This section calculates the clients’ combined total annual expenses. Your current personal insurance This section summarises the clients’ existing personal insurance products. My advice RG 90.65 This section sets out the adviser’s recommendations for meeting the clients’ needs, as set out in the ‘What you want’ section. The information has been organised under the separate headings listed in Table 4. Table 4: Headings used in the ‘My advice’ section of the example SOA Heading Explanation Insurance needs: Brad This section calculates the total cover required to meet Brad’s objectives and explains how it will meet those objectives. Insurance needs: Zara This section calculates the total cover required to meet Zara’s objectives and explains how it will meet those objectives. Reasons for my recommendations RG 90.66 This section summarises why the recommendations are considered appropriate for the clients, and the basis on which it would be reasonable to conclude that they will be better off if they follow the advice. RG 90.67 We have limited the information to key points that we think the clients need to know about the recommendations to understand why the advice is in their best interests and appropriate in light of their relevant circumstances. RG 90.68 We have not included a detailed analysis of each of the recommended insurance products because this would be in the relevant PDSs. We consider that the example SOA provides sufficient information for the clients to understand why the type and amount of insurance cover has been recommended. RG 90.69 In providing personal advice, advisers must comply with the best interests duty and related obligations. This means that, among other things, advisers must conduct a reasonable investigation into the financial products that might achieve the objectives and meet the needs of the client that would reasonably be considered relevant to the advice on that subject matter. Page 19 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 19 RG 90.70 However, the SOA does not need to set out all the details of this investigation. We have assumed that the adviser has recorded sufficient information on the client files to demonstrate that the advice is in the clients’ best interests and is appropriate. RG 90.71 We have provided detailed guidance on the best interests duty and related obligations in Section E of RG 175. RG 90.72 However, we recognise that the level of information provided in an SOA may vary depending on the advice being sought and the circumstances of the particular client. Consequences of my advice RG 90.73 We have limited the information in this section to the relevant information that the clients need to know in order to: (a) understand the financial consequences and risks of the advice; and (b) decide whether to follow the advice. RG 90.74 This section of the example SOA has been organised under the broad headings listed in Table 5. Table 5: Key headings used in the ‘Consequences of my advice’ section of the example SOA Heading Explanation Consequences of replacing products This section addresses the disclosure obligation in s947D of the Corporations Act. Section 947D applies where personal advice is, or includes, a recommendation to replace one financial product with another. We have included a table under the heading ‘Comparison of replacement and existing insurance products: Brad’, which sets out the immediate consequences of following the advice, including a comparison between the sums insured and the total annual premiums for each policy. If there are costs associated with cancelling an existing insurance policy and obtaining a new policy, these should be included here. Additional consequences and risks you should understand This section explains the financial consequences and risks of following the advice in detail, including the estimated impact of the recommendations on the clients’ cash flow and retirement savings. The purpose of this information is to ensure that clients have all the information they need to make a decision. We have tailored the information to the particular clients and the recommendations made. We have deliberately not included generic information about risk (e.g. generic references to inflation risk). How to follow my advice RG 90.75 This section outlines the steps that the clients need to take if they wish to follow the advice. Page 20 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 20 My commissions RG 90.76 While the provisions on conflicted and other banned remuneration in Divs 4 and 5 of Pt 7.7A of the Corporations Act prohibit many benefits that an adviser can receive, some commissions are excluded from the conflicted and other banned remuneration provisions and are still permitted. For advice on life insurance, commissions are permitted if requirements imposed by ASIC setting out maximum levels of upfront and ongoing commissions are met: see the Corporations Amendment (Life Insurance Remuneration Arrangements) Act 2017. RG 90.77 If an adviser and their AFS licensee do receive allowable commissions, they will need to provide details of this in the SOA: see s947B(2)(d) and 947C(2)(e). Note: For further guidance on complying with the conflicted and other banned remuneration provisions, see Regulatory Guide 246 Conflicted and other banned remuneration (RG 246). RG 90.78 In the example SOA, we have sought to strengthen remuneration disclosure by including a summary of the commissions associated with the advice in the ‘Summary of my insurance recommendations and commissions’ section. This disclosure is in addition to a full breakdown of commissions, within the body of the SOA, which appears before the authority to proceed. This is intended to draw the clients’ attention to the information and give them an opportunity to review the commissions before signing the document. RG 90.79 In addition to information about commissions, the SOA should clearly disclose: (a) any fees payable for the advice and for preparing the SOA; and (b) any product costs the clients will pay if they purchase the recommended financial products. RG 90.80 If the above apply, this should be made clear in the heading. Authority to proceed RG 90.81 It is generally industry practice to include some kind of document giving the adviser an ‘authority’ to proceed according to the advice. We have included an ‘Authority to proceed’, together with a checklist of important things the clients should make sure they have done before they act on the advice. RG 90.82 This section also includes information about the AFS licensee’s continuing review service and the cooling-off period that applies if the clients apply for the recommended products and then change their minds. Note: It is important that clients know about their cooling-off rights. Because the example SOA refers the clients to the PDS for each financial product, rather than providing detailed information in the SOA, we have assumed that the adviser has Page 21 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 21 explained to the clients the importance of their cooling-off rights and has shown them where that information can be found in the PDS. What is not included in the example SOA Disclaimers and warnings RG 90.83 Consistent with its purpose as a communication tool (and not a mechanism to protect against liability), we have not included in the example SOA any disclaimers designed to protect advisers from liability for the advice. Note: Standard disclaimers and warnings should be distinguished from information that clients need to know in order to evaluate the consequences and risks of the advice. RG 90.84 We have excluded this information because it is not designed to help the clients understand (and decide whether to rely on) personal advice. We think it would be more appropriate to include this type of information in other documents (e.g. documents that establish the legal relationship between the adviser and the clients, such as the FSG or the letter of engagement). RG 90.85 However, where personal advice is, or may be, based on incomplete or inaccurate information, a warning must be given to the client. If the SOA is the means by which the advice is provided, or the SOA is given to the client at the same time as the advice is provided, the warning may be given by including it in the SOA: see s961H. Financial product information RG 90.86 We have not included detailed information about the recommended financial products in the example SOA because this information would be in the PDS for each product. We have assumed, however, that the adviser has drawn the clients’ attention to the relevant information in each PDS. RG 90.87 The PDS is the point-of-sale document that sets out the significant features of a financial product, including its risks, benefits and cost. Its broad objectives are to help clients compare and make informed choices about financial products. Note: For further guidance about complying with the PDS requirements, see RG 168. Financial services provided RG 90.88 We have not included information about any of the other financial services provided by the adviser because this information would be available in the FSG. We have assumed, however, that the adviser has drawn the clients’ attention to the relevant information in the FSG. Page 22 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 22 RG 90.89 Under the Corporations Act, the FSG must include (among other things) information about the kinds of financial services that the adviser is authorised to provide: see s942B(2)(c) and 942C(2)(d). Note: For further information and guidance about what must be included in an FSG, see Section C of RG 175—in particular, RG 175.108–RG 175.124. Additional information RG 90.90 We consider that an SOA should be confined to explaining the advice and the basis for the advice. This means that we have not included any information in the example SOA that does not satisfy this purpose. RG 90.91 In this context, we consider that it might be more appropriate for additional information that is not material to the advice, or to the basis for the advice, to be given to, and discussed with, clients through some other means (e.g. in other documents such as promotional material, or in face-to-face meetings). In developing the example SOA, we have assumed that the adviser has told the clients that additional information can be provided on request. RG 90.92 While we recognise that the SOA may have some educational value, its primary purpose is to disclose to the client key information about the advice. We do not consider that it is necessary to provide information in an SOA to educate a client about financial products. RG 90.93 We have therefore not included additional educational information in the body of the example SOA. Instead, we have included a reference to some (hypothetical) attached educational material and provided a link to ASIC’s MoneySmart website (www.moneysmart.gov.au). Educational material may also be provided separately. Page 23 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 23 Key terms Term Meaning in this document advice Personal advice given to clients adviser A natural person providing personal advice to clients on behalf of an AFS licensee who is either:  an authorised representative of a licensee; or  an employee representative of a licensee Note: This is the person to whom the obligations in Div 2 of Pt 7.7A of the Corporations Act apply: see the definition of ‘advice provider’ in the ‘key terms’ in RG 175. AFS licence An Australian financial services licence under s913B of the Corporations Act that authorises a person who carries on a financial services business to provide financial services Note: This is a definition contained in s761A. AFS licensee A person who holds an AFS licence under s913B of the Corporations Act approved product list A list of financial products, determined by the AFS licensee, and considered suitable for the licensee’s representatives to recommend to clients ASIC Australian Securities and Investments Commission authorised representative A person authorised by an AFS licensee, in accordance with s916A or 916B of the Corporations Act, to provide a financial service or services on behalf of the licensee Note: This is a definition contained in s761A. best interests duty The duty to act in the best interests of the client when giving personal advice to a client as set out in s961B(1) of the Corporations Act best interests duty and related obligations The obligations in Div 2 of Pt 7.7A of the Corporations Act client Retail client client’s relevant circumstances The objectives, financial situation and needs of a client that would reasonably be considered relevant to the subject matter of advice sought by the client Page 24 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 24 Term Meaning in this document conflicted remuneration A benefit given to an AFS licensee, or a representative of a licensee, who provides financial product advice to clients that, because of the nature of the benefit or the circumstances in which it is given, could reasonably be expected to influence:  the choice of financial product recommended to clients by the licensee or its representative; or  the financial product advice given to clients by the licensee or its representative. In addition, the benefit must not be excluded from being conflicted remuneration by the Corporations Act or Corporations Regulations conflicted and other banned remuneration provisions The provisions on conflicted remuneration and other banned remuneration in Divs 4 and 5 of Pt 7.7A of the Corporations Act and in Div 4 of Pt 7.7A of the Corporations Regulations Corporations Act Corporations Act 2001, including regulations made for the purposes of that Act Corporations Regulations Corporations Regulations 2001 example SOA The example SOA set out in Appendix 2 to this guide factual information Objectively ascertainable information whose truth or accuracy cannot reasonably be questioned financial adviser See ‘adviser’ financial product A facility through which, or through the acquisition of which, a person does one or more of the following:  makes a financial investment (see s763B);  manages financial risk (see s763C);  makes non-cash payments (see s763D) Note: This is a definition contained in s763A of the Corporations Act: see also s763B–765A. financial product advice A recommendation or a statement of opinion, or a report of either of these things, that:  is intended to influence a person or persons in making a decision about a particular financial product or class of financial product, or an interest in a particular financial product or class of financial product; or  could reasonably be regarded as being intended to have such an influence. This does not include anything in an exempt document or statement Note: This is a definition contained in s766B of the Corporations Act. Page 25 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 25 Term Meaning in this document financial service Has the meaning given in Div 4 of Pt 7.1 of the Corporations Act FSG A Financial Services Guide—a document required by s941A or 941B to be given in accordance with Div 2 of Pt 7.7 of the Corporations Act Note: This is a definition contained in s761A. general advice Financial product advice that is not personal advice Note: This is a definition contained in s766B(4) of the Corporations Act. PDS A Product Disclosure Statement—a document that must be given to a client for the offer or issue of a financial product in accordance with Div 2 of Pt 7.9 of the Corporations Act Note: See s761A for the exact definition. personal advice Financial product advice given or directed to a person (including by electronic means) in circumstances where:  the person giving the advice has considered one or more of the client’s objectives, financial situation and needs; or  a reasonable person might expect the person giving the advice to have considered one or more of these matters Note: This is a definition contained in s766B(3) of the Corporations Act. providing entity A person to whom the obligations in Pt 7.7 of the Corporations Act apply. This is the AFS licensee or an authorised representative that provides the financial product advice Pt 7.7A (for example) A part of the Corporations Act (in this example number 7.7A) representative of an AFS licensee Means:  an authorised representative of the licensee;  an employee or director of the licensee;  an employee or director of a related body corporate of the licensee; or  any other person acting on behalf of the licensee Note: This is a definition contained in s910A of the Corporations Act. retail client A client as defined in s761G of the Corporations Act and Div 2 of Pt 7.1 of the Corporations Regulations RG 175 (for example) An ASIC regulatory guide (in this example numbered 175) s961 (for example) A section of the Corporations Act (in this example numbered 961), unless otherwise specified Page 26 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 26 Term Meaning in this document scaled advice Personal advice that is limited in scope SOA A Statement of Advice—a document that must be given to a client for the provision of personal advice under Subdivs C and D of Div 3 of Pt 7.7 of the Corporations Act Note: See s761A for the exact definition. Page 27 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 27 Related information Headnotes advice provider, adviser, best interests duty, best interests duty and related obligations, communications with a client, example SOA, factual information, financial advice scenario, financial product, financial product advice, Financial Services Guide, FSG, general advice, goals and objectives, life insurance, life insurance advice, PDS, personal advice, personal insurance, Product Disclosure Statement, retail client, scaled advice, scope of the advice, SOA, Statement of Advice, subject matter of advice sought by the client Regulatory guides RG 168 Disclosure: Product Disclosure Statements (and other disclosure obligations) RG 175 Licensing: Financial product advisers—Conduct and disclosure RG 221 Facilitating digital financial services disclosures RG 244 Giving information, general advice and scaled advice RG 246 Conflicted and other banned remuneration Reports REP 413 Review of retail life insurance advice Information sheets INFO 182 Super switching advice: Complying with your obligations Legislation Corporations Act, Pts 7.6 and 7.7, Divs 2, 4 and 5 of Pt 7.7A, s942B, 942C, 947B, 947C, 947D, 961B, 961H, 961J Corporations Regulations Corporations Amendment (Future of Financial Advice) Act 2012 Corporations Amendment (Life Insurance Remuneration Arrangements) Act 2017 Corporations Amendment (Life Insurance Remuneration Arrangements) Regulations 2017 Page 28 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client © Australian Securities and Investments Commission December 2017 Page 28 Appendix 1: Financial advice scenario for example SOA RG 90.94 We based our example SOA on a hypothetical and limited financial advice scenario developed in consultation with stakeholders. RG 90.95 Table 6 and Table 7 describe the advice scenario, while the example SOA is set out in Appendix 2. RG 90.96 The scenario deals with Brad and Zara Black—a married couple with two young children who have asked a financial planner, Sally Chong, to advise them on personal insurance cover in the event of death or disability, taking into account their current income and assets. Sally is an authorised representative of AFS licensee Planforit Pty Ltd. Table 6: Financial advice scenario Relevant area Description Personal circumstances Brad is 43 and Zara is 41. They are married with two children aged 10 and 7. Both children are at public schools and it is not expected that they will go to private schools in the future. Brad and Zara are both in excellent health and have standard private hospital cover. Brad’s job pays $85,000 a year before tax. Zara works part time, earning $16,000 a year before tax. They receive a Family Tax Benefit from the Government of $1,896. Assets Brad and Zara have no significant savings (they currently have $5,000 in a joint- access savings account). Brad and Zara jointly own a house valued at $550,000, with a $440,000 mortgage. They also own other assets valued at $10,000. Brad has $100,000 in a superannuation fund. Zara has $30,000 in a superannuation fund. Debts/expenses Most of the money that Brad and Zara earn goes towards paying the mortgage and covering living expenses, with about $12,000 of annual estimated surplus cash flow. Insurance Brad currently holds life and total and permanent disability (TPD) insurance through his superannuation fund, with cover to the amount of $200,000, and income protection insurance through Mantra Financial Services Pty Ltd, with cover to the amount of $5,350 per month. Zara holds life and TPD insurance through her superannuation fund, with cover to the amount of $200,000. Reason for seeking advice Brad and Zara are seeking a review of their personal insurance needs to ensure that their family has adequate financial support in the event of death, disability or illness. Brad and Zara both recognise the value of having comp