12. Giving Advice
The advice “cheat sheet”
When do you give what to the client? See the diagram below.
You communicate with The FSG, SoA, SoAA or PDS
may be given to the client by:
a retail client
Have they got the CD; or
most up-to-date any other method as agreed
FSG? between you and the client,
Replacement of which allows you to be sure
the client has received it.
product: If the advice
is to replace one “Advice” means financial
product with another, product advice. This assumes
tell the client the that if you’re providing
costs, loss of benefits financial product advice, it’ll be
and other personal advice.
consequences of the Are you giving
Give the client an
advice? FSG before you start
If you can’t give the FSG
before you start, give it
Yes No within 5 business days of
communicating with the
client. If it’s a new client,
Make a file note before you start, explain
Have you given to them how you’re paid
on the spot or
the client an
SoA in the
Is the client
instructing you to
help them buy a
Yes No product?
Has there been a Give the client an
SoA as soon as is Yes
change in the practicable
client‟s circ‟s or No further action
the basis of your
If the client wants to necessary
implement your advice
before you get the SoA
or SoAA to them, give Is your advice
them the SoA or SoAA to buy a If the client wants to buy
Yes No within 5 business days
product? the product before
of implementing the getting the PDS, give
advice them the PDS within 5
business days of them
Give the Make a Yes buying the product
client an record of No
SOA or advice on the
SoAA as spot or soon Where the product has a
soon as is afterwards No further action PDS, give it to the client
practicable necessary before they buy the product
Compliance Manual Version 5 – 2009 Page 1
Giving a Product Disclosure Statement (PDS)
You must provide a PDS to the client before or at the time of recommending a
If you are recommending an IDPS or wrap facility, you must provide a PDS for each
underlying investment which you are recommending.
You must be able to show on the file that you have provided these PDSs.
When are you not giving advice?
“Financial Product Advice” is a recommendation or statement of opinion that is intended
(or could reasonably be regarded as being intended) to influence a person to make a
decision about a financial product or class of products. It can be verbal or in writing.
To determine whether you are giving “advice” ask yourself:
“what actually is the client asking of me, or expecting me to do?”
[Alisar suggested adding the contents of a conference slide with scenarios, here]
Is the client merely asking for administrative or factual information?
Factual Information (or “no advice”) is when:
you make no qualitative judgement, and the information which is given is that
which can be objectively tested;
you don’t provide your opinion about a particular financial product (eg. BHP
shares) or class of products (eg. mining shares);
you don’t make a recommendation about a particular financial product or class
of products; or
you don’t “add value to the facts” when talking about financial products.
Shares example: A client asks the difference between a DRP and receiving the cash dividend. You
explain to the client those factual differences. That‟s not advice.
If, however, the client then asks “what do you reckon?”, and you provide your opinion, you would be
giving advice to the client.
Pension example: You get a query from a client asking how one would qualify for a particular
pension. Provided that you only advise on the general requirements, and don‟t proceed to tell the
client how he or she should personally structure his or her affairs in order to qualify, then you would
not be giving advice.
Listed property example: If a client asks how listed property trusts have performed over the past 3
years, and you only provide data demonstrating that performance statistically, then this is not advice.
Insurance example: If a client asks you for an income protection quote and TPD quote, then
providing those quotes (assuming you don‟t include a recommendation or opinion attached to them) is
If it is only “administrative” or “factual” information which is being given, and there is no
expression of opinion or recommendation by you, then it is not advice.
1.1.1 Non-advisory staff
You need a documented process (which will include training) to ensure that non-
advisory staff do not provide financial product advice.
When are you giving only “general” advice?
General advice is advice that doesn’t take into account any of the client‟s:
You need to ask yourself three questions to determine whether you‟re providing
general advice or not:
1. “In making my recommendation/opinion about this financial product(s), am I
taking into account any of the person‟s needs, objectives or financial
situation?” Yes or No?
2. “Will the person assume or think that I have in fact taken into account any
of their needs, objectives, or financial situation?” Yes or No?
3. Has the possession of the information about your client influenced your
statement? Yes or No?
If you answer “no” to all three, then you have probably provided general advice only. If you
answer “yes” to even one of the questions, then you have provided personal advice.
Compliance Tip: Remember that if you have an existing relationship with the client then you
need to be very careful to make sure that you are not giving them personal advice! They
might assume, that because they have dealt with you before that you are giving them
If you are only giving general advice then you do not have to give an SOA, SOAA or ROA.
But, you do have to give a general advice warning (GAW). The warning can be incorporated
into the substance of the general advice.
Standard words for a verbal and written warning are at WORKING DOC 1: Warnings. Click
here to access WORKING DOC 1: Warnings.
General information can be given to a client even if you have information about the
client‟s personal circumstances. The test for whether financial product advice is
“personal” or general is not whether you possess information about the client‟s
personal circumstances but whether you have taken it into account. You will not
necessarily take the information into account merely because you have the
Compliance Tip: If ASIC notes you are engaging in many GAW situations they will see that as
a flag to have a close look at your files. Using the GAW to get around compliance
requirements will backfire on you!
What types of clients do not have to receive an SOA, SOAA or ROA?
Regardless of whether or not a client is retail or wholesale, you must provide them
with an FSG. This is part of our policy to manage conflicts of interests. We manage
some conflicts by disclosing to clients how we are paid. You must also document
your advice in writing.
For other purposes, you can determine whether your clients are retail or wholesale using the
following guidelines. You are not required by law to give an advice document (SOA, SOAA
or ROA) to a “Wholesale client”.
1.1.2 Wholesale clients – when advising or dealing in superannuation
and RSA products
When you are advising or dealing in superannuation products, a wholesale client is:
a trustee of a superannuation fund (or ADF or PST or a public sector super scheme)
and the trust/fund/scheme has net assets of at least $10 million; or
a person who controls at least $10 million (“control” can include under a trust).
All other clients must be treated as retail clients when advising or dealing in
superannuation (and so SOAs, SOAAs and ROAs must be used).
1.1.3 Wholesale clients – when superannuation and RSA products are
NOT included in your advice or dealing
If your advice or dealing does not relate to anything with superannuation or an
RSA provider, then a wholesale client, will not have to receive an advice document.
This will be:
a client who is:
(i) receiving advice on an investment (and not a risk) product, and
(ii) investing at least $500,000 in a single product – after you have deducted
(a) your fees, if your fee is to be deducted from the amount invested, and
(b) any part of that sum which has been sourced from the superannuation
a manufacturing business employing over 100 staff; or
advice to any other business employing more than 20 staff, or
the person gives a certificate from a qualified accountant (prepared in the
preceding 2 years) stating that the person has either $2.5 million net assets,
or a gross income of $250,000 over the past 2 years. (The accountant may
include the net assets or gross income of any trust or company the person
controls. Also, any trust or company controlled by a person meeting this
definition is also a wholesale client.); or
a financial services licensee; or
a listed company; or
a person overseas which would fit one of these definitions.
When giving personal advice to a retail client
When you give personal advice to a retail client for the first time, you must give
them an SOA at or shortly after you have given the advice (see FURTHER-INFO 4).
Keep all advice documents on your client file for at least 7 years.
The five pillars of an SOA
Regardless of the scope of your advice, there are five pillars which every SOA is required
by law to include.
Your SOA must have a clearly defined scope. Without a clear scope, you open
yourself up to any number of potential risks, ranging from claims by clients or
investigation and punishment by ASIC.
Your scope must include a clear statement of what you are being asked to do –
now and ongoing, including any restrictions, based on your conversations with the
Example of good scope: “David, you have asked me to review your current superannuation
arrangements and to advise you on a strategy to enhance your retirement benefits. You have
declined my recommendation to discuss your life insurance needs because you believe that you have
sufficient cover already.”
Your scope must not include:
A templated, generic statement which does not reflect your actual discussions with
the client. (Tip: don‟t mix your recommendations into the scope!)
Example of bad scope: “David, you have asked me to roll over all your industry fund account
balances into Navigator which will provide you with simplified reporting.”
Example of bad scope: “You have asked us to advise you in relation to general financial
planning needs.” And you do not advise the client on life insurance, then you could be sued
for the full value of a life insurance policy that you never recommended!
Compliance Tip: You should ensure the scope is consistent with the terms of engagement
and the client‟s objectives.
1.1.5 Reasonable Basis
The second pillar is that you must have a reasonable basis for your advice.
“Reasonable basis” refers to:
(a) providing advice where you:
(i) determine the client‟s relevant personal circumstances in relation to giving
the advice; and
(ii) make reasonable inquiries in relation to those personal circumstances;
(b) having regard to information obtained from the client in relation to those personal
circumstances, you have given such consideration to, and conducted such
investigation of the subject matter of the advice as is reasonable* in all of the
(c) the advice is **appropriate to the client, having regard to that consideration and
*What is “reasonable”?
What is “reasonable” varies with the circumstances and is “scalable” depending on things
Whether you‟ve previously provided advice to the client
the potential impact of inappropriate advice
the complexity of the advice
the financial literacy of the client
Note about “scalable” consideration and investigation: Where personal advice is provided
for a relatively simple purpose, such as the purchase of car insurance or the opening of a deposit
account, less extensive consideration and investigation of the subject matter of the advice is
likely to be required than for advice about complex financial products, classes of financial
products or strategies (such as tax-related strategies or higher risk strategies such as the use of
margin lending in connection with the purchase of a financial product) - RG 175.113
**What is “appropriate”?
ASIC says that, in its view, “appropriate” advice, is advice which, if acted upon by the client,
would be reasonably likely to satisfy critical aspects of the client‟s relevant personal
circumstances” (RG 175.89)
This “reasonable basis” definition is taken from section 945A of the Corporations Act.
To make sure you have a reasonable basis, ask yourself the following questions:
1. Is there a sufficient detail of the client’s relevant personal circumstances
which were ascertained after making the reasonable inquiries?
2. Have the client‟s goals and objectives been clearly identified? (Eg. to give their
children a private school education).
3. Have the client‟s needs been clearly identified? (Eg. a calculation to determine
the appropriate level of life insurance cover.)
4. Have reasonable enquiries been conducted to ensure that the information
about the client‟s relevant personal circumstances is up to date and complete?
5. Have enquiries been made of the client‟s considerations into environmental,
social or ethical matters?
6. Is the detail and complexity of the inquiries, consideration and advice
proportionate to the complexity of the client‟s purpose?
7. Is the detail and complexity of the inquiries, consideration and advice
proportionate to the potential negative impact on the client if inappropriate advice
is acted upon? (More extensive client inquiries and consideration of the subject will
be necessary where the potential negative impact is likely to be relatively serious.)
8. Has the client’s financial literacy been taken into account?
9. Is there a generic description of the range of financial products, classes of
financial products or strategies considered and investigated in the SOA or
somewhere in the file?
10. Is a statement of the advice itself is included?
11. Is there an explanation of the reasons why advice is appropriate to the client,
including advantages and disadvantages if the advice is acted upon?
12. Are the main risks of the advice not satisfying critical aspects of the client‟s
relevant personal circumstances set out?
13. If your advice is based on information about the client‟s relevant personal
circumstances that you know is incomplete or inaccurate, or you are unsure, have
you included the required warning? [Note: the warning is at WORKING-DOC 1]
14. If acted upon, is the advice reasonably likely to satisfy critical aspects of the
client‟s relevant personal circumstances (e.g. the client‟s need for regular income)?
15. Have alternative strategies been considered particularly where the advice is
complex or the potential impact of an adverse outcome of inappropriate advice is
significant to the client?
16. Have reasonable steps been taken to ensure that any external research relied
upon is accurate, complete, reliable and up-to-date?
17. Is the advice provided to the client appropriate (suitable) for the client‟s
objectives, financial situation and needs?
18. If applicable, does the recommended replacement product have greater overall
benefits for the client than the old product? If not, is there justification for the
recommendation (e.g. lower cost)?
You (or an auditor) should be able to answer the above questions by looking at the
complete client file.
See our SOA INSTRUCTIONS TEMPLATE which is available from [insert how
adviser can access this]. It tells you what must be on the completed client file.
1.1.6 Replacing Products
The third pillar is that you must do certain things if you are replacing a product.
Replacing a product includes if there is a disposal of or reduction of a level of
interest in a financial product and instead an acquisition of or increase of a level
of interest in another financial product.
To make sure you do the right things, ask yourself the following questions:
Questions if replacing a product Yes/No
1. Have you described any charges the client may incur in relation to the disposal or
reduction, stated as amounts in dollars*?
a. If no, and where you do not know the amount, and cannot reasonably find it,
have you included a statement that there may be charges but you do not
know what they are?
2. Have you described any charges in relation to acquisition or increase, stated as
amounts in dollars*?
a. If no, and where you do not know the amount and cannot reasonably find it,
have you included a statement that there may be charges but you do not
know what they are?
Questions if replacing a product Yes/No
3. Have you described any benefits, pecuniary or otherwise, that the client may
lose as result of taking action, stated as amounts in dollars*?
a. If no, have you included a statement that there may be lost benefits but you
do not know what they are?
4. Have you described any other significant consequences of action, stated as
amounts in dollars?
a. If no, have you included a statement that there may be other consequences
but you do not know what they are?
Where you can‟t disclose an amount in dollars because not all factors are known, and
cannot reasonably be discovered by you, you may disclose as a percentage instead.
If it‟s not possible to disclose the amount as a percentage, explain the method of
calculation. In both cases, give worked dollar examples.
Where it is a non-monetary benefit or interest, disclose:
the nature and extent of the benefit/interest;
the circumstances in which the benefit/interest will arise or be provided; and
the estimated value of the benefit/interest, where a retail client would reasonably
require such an estimated value for the purposes of deciding whether to act on the
Did you know that advising to move a client‟s money from a Cash Management
Trust into another product is a replacement recommendation? Even moving a
client‟s funds around within an administration style platform is replacement advice!
Remember, replacement of product advice is not confined to replacing one product
with another similar type of product.
Rebalancing will trigger replacement of product requirements if you advise or deal in
relation to the rebalance. It will not trigger the requirements if your client‟s money is
invested in a fund which does the rebalancing.
Example where replacement of product requirements apply: You recommend that your
client, an SMSF trustee, rebalance his fund by using surplus cash reserves to purchase more
Example where replacement of product requirements do not apply: You have previously
recommend that your client maintain a “balanced” portfolio, and all of her funds are invested
in a managed fund, which automatically rebalances the fund quarterly according to that
1.1.7 Disclosure of Benefits
The fourth pillar is that you must disclose benefits. This includes monetary and
non-monetary benefits paid to you, your business, referrers, the licensee, and
any related companies or associates!
To make sure you do the right thing, ask yourself the following questions:
1. Have you disclosed remuneration/benefits to be received by you that might
reasonably be expected to be capable of influencing you or your business in
providing the advice – stated as amounts in dollars?*
2. Have you disclosed remuneration/benefits to be received by your employer or your
business (eg. the corporate authorised representative) that might reasonably be
expected to be capable of influencing you in providing the advice – stated as
amounts in dollars?*
3. Have you disclosed remuneration/benefits to be received by us (the licensee) that
might reasonably be expected to be capable of influencing you in providing the
advice – stated as amounts in dollars?*
4. Have you disclosed remuneration/benefits to be received by a director or employee
of us (the licensee) that might reasonably be expected to be capable of influencing
you or your business in providing the advice – stated as amounts in dollars?*
5. Have you disclosed remuneration/benefits to be received by an associate** that
might reasonably be expected to be capable of influencing you or your business or us
in providing the advice – stated as amounts in dollars?*
6. Have you disclosed other interests, whether pecuniary or not and whether direct or
indirect, you and your business, us (the licensee) or an associate of any of those
that might reasonably be expected to be capable of influencing you or your business
in providing the advice – stated as amounts in dollars?*
7. Have you disclosed information about remuneration (including commission) and other
benefits that a person receives for referring a client to you, your business or us?
In addition to the bare legal requirement, you need to look at your explanation of the fees
and commissions disclosure from the perspective of the client. You are familiar with
pricing structures and the role of commissions, but clients are not.
Make sure for disclosure in the SoA is as simple as possible – this will protect you in the long
It is very easy for clients to misunderstand, or misinterpret, what your services actually cost
and how you are paid.
1.1.8 Clear, Concise and Effective
The fifth pillar of a statement of advice is that it must be clear, concise and
effective. It must be easy for the client to understand. ASIC and the FPA has
provided examples of SOAs which are less than 20 pages long. Our templates will
also meet this requirement, if they are used properly.
FPA example: [insert link or attach the FPA example SOA]
ASIC example: [insert link or attach the ASIC example SOA]
Meritum Financial Group templates: [insert link or instructions to access
Don’t include complex tables or educational material in your SOA. Focus on the
five pillars! If you feel you really need to include some material like this, attach it as
an appendix. Do not attach any of these five pillars as an appendix!
Do include ranges, rates, comparisons, simple tables and formulas in order to
ensure that information is presented in a clear, concise and effective manner.
Other requirements for a SOA
There are other requirements for an SOA. We have not included them as pillars, even
though they are legal obligations. They include:
Front Page requirements
Does the front page include? Yes/No
1. Is the title “Statement of Advice” on the cover or near front of SOA?
2. Are the name and contact details of you and your business, including
authorised representative numbers, included?
3. Is MERITUM‟s full name and licence number included?
4. Is there a statement that you and your business are an authorised
representative of that/those licensee(s)?
You must also include information about other associations and relationships:
Disclose any associations or relationships between you, your business,
us, (the authorising licensee) or any associate** and any financial product
issuers that might reasonably be expected to be capable of influencing you
and your business in providing the advice.
Compliance Tip: If ASIC picked up your SOA would they be able to say “Yes” to the following
1. Has the adviser made reasonable inquiries about the client‟s relevant personal
circumstances? Yes or No;
2. Has the adviser considered and investigated the products they are recommending? Yes or
3. Is the advice appropriate for the client? Yes or No
If you can put your hand on your heart and answer those three questions with a “Yes” then you
have probably met the requirements.
Full Advice with Limited Scope or incomplete information
1.1.9 Full Advice with Limited Scope
There is no such thing as limited advice. Your client will always expect full advice
– sometimes with a limited scope.
You may decide to give full advice with a limited scope because the client specifies that they
only want to receive advice on a particular product or strategy, or advice on particular
types or ranges of products, or on a limited subject. In such cases, it is particularly important
to clearly set out the precise limits of the task the client requires of you.
1.1.10 What if the client does not give you the full story?
It may be the case that:
the client will not provide the information which you will need; or
the client indicates that the information which has been given to you is only an
estimate, and so objectively it should be treated as potentially inaccurate
the client can only give you incomplete information at the time that the advice is
You still have to give that client a Statement of Advice but it must spell out at its beginning
that the client has provided limitations on the advice that you can give, because you do not
have the full picture.
Your SOA must include the warning at WORKING-DOC 1 at its beginning.
A Statement of Additional Advice (SOAA)
An SOAA is written advice that is given to a client who received an SOA from you in the
You should use an SOAA if you have previously given an SOA to the client, and:
you are providing personal advice; and
the basis for your advice or the client‟s personal circumstances have
Examples of where there is a “significant change” may include:
transitioning to retirement
switching super policies
receipt of an inheritance
recommending a financial product or strategy which falls outside of a client’s existing
strategy or risk profile
The SOAA can be shorter. But, it may not necessarily be that it takes less time to prepare. .
To do a SOAA properly, you should go through each of the five pillars, so that you ensure
changes in client details are noted and referred to in the current advice.
A checklist for your SOAA is included as WORKING-DOC 5.
Record of Advice (ROA) – Further Advice
You don‟t need to provide a client with a SOA or SOAA when further advice is given to a
the client has previously received an SOA; and
there are no “significant changes” in either of the client‟s personal circumstances
or the basis of the advice provided in the initial Statement of Advice.
Examples of where there are no “significant changes” may include:
Rebalancing or switching within a platform or service but remaining consistent with the
existing strategy and client‟s risk profile
Increase or decrease in income protection cover because of increase in income/salary
Increase or decrease in contribution to existing product eg increased contributions to
superannuation or a particular managed fund
Purchase of direct shares/options where consistent with existing strategy and risk profile
Sale of existing share to purchase another share where consistent with existing strategy
and risk profile
Withdrawing cash to cover short term needs
A rollover of a maturing investment eg annuity or term deposit
You just need to keep a record of that advice, and be able to provide a copy to the client
You can only give a client a ROA if you have given them a SOA.
A ROA cannot be used to add to a SOAA.
There are only a limited number of situations in which a ROA can be given. The longer the
gap since the original SOA was given (and not a SOAA) the greater the likelihood that the
client‟s situation will have changed. If the client‟s situation has changed you can‟t use a
You must be careful if the original SOA contained a limited scope or you received only
limited information about the client. In these circumstances, the scope of the later/further
advice may be different or the client‟s circumstances will have changed, or you may simply
now have more information about their circumstances.
If you are in any doubt as to whether the changes are significant or not, you should
do another SOA or SOAA.
The notes which you keep in the ROA should be as comprehensive as possible, if you are to
provide yourself with the best protection.
You also need to verbally disclose any remuneration, benefits or associations
which could be seen to influence the further advice – do this at the time the advice
A template ROA for you to use is included as WORKING-DOC 7.
Record of Advice – Small Investment Advice
When you provide investment advice to a client where that advice relates to less than
$15,000, you don‟t need to provide an SOA. You do, however, need to provide an
ROA to the client – even if you‟ve never given them an SOA before.
Calculation of advice on shares, debentures and stapled securities need to be
calculated to include the total value of all financial investments that would be
committed (or disposed of).
Calculations of advice on superannuation, managed investment schemes (MIS)
or non-derivative instalment warrants need to be calculated to include the total
value over 12 months (if investment not finite) and must include other amounts
committed by client or reasonably related to the divestment.
If you can’t work out the total value, then the advice is deemed to exceed the
threshold, you must provide an SOA.
The timing for the ROA is the same as for an SOA.
Record of Advice – “hold” / “no recommendation” advice
1. you provide personal advice, but make no recommendation to acquire or
dispose of a particular financial product or products of a specific issuer, or
no recommendation to modify the client‟s investment strategy or
contribution levels (eg if you make a „hold‟ recommendation); and
2. you, the licensee, or a director or employee of the licensee don’t receive
directly any remuneration from the advice; then
you don‟t need to provide the client with an SOA. You just need to keep a copy of
the ROA on the file.
The content requirements of the ROA are the same as the content requirements of the
Normal ROA, outlined above.
See WORKING-DOC 7 for a template ROA
See FURTHER-INFO 4 for an example of how this and other advice documents are
used in practice.
“No advice” or Execution only instructions
If a client requests that you conduct a transaction (ie. deal) and you have not provided any
recommendation about that transaction you don‟t have to do a SOA or a SOAA.
You must ensure that your client file contains evidence that you did not give any
advice in relation to the particular transaction. This can be done through a short email
or note to the client, or by obtaining written instructions from the client that show that
the client is not requesting advice.
Be careful where the client is proposing to invest in something that you think would
be risky for them.
Even though the client has not asked you for advice, you need to let them know the
risk that they are taking on in this particular transaction. It could be alleged that you
had a general duty to point out the risks to a client and not to remain silent on the
When it is not enough to simply provide a product brochure.
You must know and understand any product that you think is appropriate to recommend.
It is your responsibility to undertake a review of the products available on the
Meritum Financial Group approved product list. Reliance upon external
research alone is not sufficient protection for the financial planner.
There are a number of products available which use more sophisticated trading techniques,
or a range of complex derivative instruments, in order to improve the rate of return. You
need to really understand these types of funds so that you can, in simple terms, explain the
nature of the risks to the average investor.
When assessing the appropriateness of any investment product, you should consider such
matters as the inherent risks, including the nature of the underlying investments and assets
and any other factors. The investigation undertaken by an adviser should include two
due diligence; and
The product research aspect must involve a comparative analysis of the relevant product
with similar products.
Compliance Tip: The Courts have said that relying on APL is not enough. For example, in
relation to Westpoint, it was determined by the National Panel Chair of FOS* that an adviser
cannot blindly rely on a product being on their Approved Product List (APL) as being a
reasonable basis for recommending that particular investment. They also need to be
reasonably familiar with the features and benefits, and risks associated with any
The determination included the following passage: “The Panel is not satisfied that [the
adviser] properly understood the nature of the risks attached to this type of mezzanine
investment or the particular risks attached to the Mount Street Mezzanine Pty Limited
because of his failure to adequately research the investment prior to it being made.
Accordingly, he was not in a position to assess its appropriateness for the complainant‟s
needs and objectives or properly advise her in relation to same.”
*31 October 2008, number 17338
What you can give electronically
You can provide advice in either printed or electronic form. If you provide the
document electronically, it must be provided in a tamper proof document, such as a
PDF. You must keep a record of having provided it, and some record that the client
did receive it.