Act in the best interests of your client

When providing personal advice to a retail client, you must act in their best interests in relation to that advice: see section 961B. We refer to this as the ‘best interests duty’.

When assessing whether you have complied with the best interests duty, we will consider whether, at the time the advice is given, a reasonable advice provider would believe that your client is likely to be in a better position if they follow your advice.

Scaled advice

The advice that you provide to a retail client can be ‘scaled’ or ‘limited in scope’. For example, you might scale or limit the scope because the client requests it or because you suggest it on the basis that your limited AFS licence authorisations only allow you to provide a limited scope of advice.

However, you must use your judgement when deciding on the scope of the advice and define the scope in a way that is still in your client’s best interests – that is, in a way that is consistent with their relevant circumstances and the subject matter of the advice they are seeking.

It is important that you make clear to your client, from the outset, the scope of the advice you are providing.

‘Safe harbour’ steps

One way to satisfy the best interests duty is to show that you have taken the ‘safe harbour’ steps set out in section 961B(2). If you do not take these steps, we expect you to take other steps that would, at a minimum, produce the same standard of advice for the client as if the safe harbour steps had been complied with.

To comply with the safe harbour steps, you must:

• identify the objectives, financial situation and needs of your client that were disclosed by your client
• identify:
• the subject matter of the advice sought by your client (whether explicitly or implicitly)
• the objectives, financial situation and needs of your client that would reasonably be considered relevant to advice sought on that subject matter (client’s relevant circumstances)
• if it is reasonably apparent that the information you have about your client’s relevant circumstances is incomplete or inaccurate, make reasonable inquiries to obtain complete and accurate information
• assess whether you have the expertise required to provide your client with advice on the subject matter sought and, if not, decline to provide the advice
• if it would be reasonable to consider recommending a financial product (such as an interest in an SMSF):
• conduct a reasonable investigation into the financial products that might achieve the objectives and meet the needs of your client and that would reasonably be considered relevant to advice on that subject matter (e.g. in the case of an SMSF recommendation concerning the client’s existing superannuation fund(s) and the SMSF, if you have the authorisation to provide class of product advice about superannuation, you may also wish to consider non-SMSF self-directed or ‘do-it-yourself’ superannuation products generally)
• assess the information gathered in the investigation
• base all judgements in advising your client on their relevant circumstances, and
• take any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of your client, given their relevant circumstances.

For more information on how we assess compliance with the best interests duty, see Section D of Regulatory Guide 175 AFS licensing: Financial product advisers—Conduct and disclosure (RG 175). Appendix 2 to RG 175 includes two examples of the process that we would apply when reviewing your personal advice to determine whether you have complied with the best interests duty.

See also Table 12 in Appendix 3 to Report 515 Financial advice: Review of how large institutions oversee their advisers (REP 515), which is a checklist of issues that should be considered when personal advice is being reviewed to determine whether the best interests duty and related obligations have been met. As well as helping you to prepare advice, this checklist will help when you carry out audits of the advice given to your clients.

Provide appropriate advice

Personal advice must only be provided to a retail client if it would be reasonable to conclude that the advice is appropriate for them, assuming that the best interests duty had been complied with: see section 961G. This means that you are assumed to know all the information about the client, strategy and product (if any) that you would know if you had properly complied with the best interests duty.

We consider that advice is appropriate if it would be reasonable to conclude, at the time the advice is provided, that:

• it is fit for its purpose – that is, following the advice is likely to satisfy the client’s relevant circumstances, and
• the client is likely to be in a better position if they follow the advice.

For more information on your obligation to provide appropriate advice, see Section D of RG 175.

Warn if advice is based on incomplete or inaccurate information

You must make reasonable inquiries to obtain complete and accurate information about a retail client’s relevant circumstances when providing personal advice. If, after making these inquiries, it is reasonably apparent that you have based your advice on incomplete or inaccurate information about your client’s relevant circumstances, you must warn your client: see section 961H.

The warning should say that:

• the advice is, or may be, based on incomplete or inaccurate information, and
• because of this, your client should consider the appropriateness of the advice – taking into account their objectives, financial situation and needs – before acting on it.

For more information on your obligation to give a warning if advice is based on incomplete or inaccurate information, see Section D of RG 175.

Give priority to your client’s interests

You must prioritise a retail client’s interests if, when you give advice, you know or reasonably ought to know that there is a conflict between the interests of the client and your interests or the interests of an associate of yours (e.g. a director of the entity that is the limited AFS licensee or a related entity): see section 961J.

To comply with this obligation, you should first identify what interests you and your associates have. An interest includes any benefits that you or your associates may receive if your client adopts your advice. For example, if you advise your client to establish an SMSF and you would receive payment for assisting to establish the SMSF and its ongoing administration if they did so, these would be interests. Another example might be if a partner in your firm (i.e. an associate) stands to receive fees from the client for auditing the client’s SMSF.

While the obligation to prioritise the interests of your client when giving advice does not prevent you from having these interests, you must ensure that you do not act to further your interests or those of one of your associates over those of your client when giving your advice. In complying with this obligation, you should consider what a reasonable advice provider without a conflict of interest would do.

For more information on how we administer the obligation to prioritise clients’ interests, see Section D of RG 175.

Written consent

You need to obtain client written consent to enter an ongoing fee arrangement and for the fees to be charged under that arrangement: see section 962G(1). If you propose to deduct, arrange to deduct or accept the deduction of ongoing fees under the arrangement from a third-party account, you also need to obtain the client’s written consent unless the account is a bank account or an account linked to a credit card: see sections 962R and 962S.

The written consents must be signed by the client dated and, if the account is held jointly, each account holder must sign a separate written consent to meet the requirements: see section 962S(4).

You can seek written consent electronically (e.g. by email or on a webpage). If you are required to give more than one notice or form to the same person in meeting your ongoing fee arrangement responsibilities, you can combine the information into a single notice or form. In that case, all requirements for giving each form or notice must be met, and the form or notice must clearly state the purposes for which it is being given: see section 962YA.

You must also keep client consent to enter an ongoing fee arrangement or a copy of it: see section 962G(1). Where applicable, you must give a copy of a client’s written consent for you to deduct, arrange to deduct or accept ongoing fees to the relevant account provider(s): see section 962S(3)(c). You should consider your privacy obligations when passing on confidential information in the written consent to different account providers and seek independent legal advice if necessary.

You cannot charge fees under an ongoing fee arrangement from a MySuper product (see section 29VA(9A) of the SIS Act).

Disclosure requirement

Before obtaining a client’s consent to enter an ongoing fee arrangement, or before obtaining the client’s written consent to deduct, arrange to deduct or accept ongoing fees, you need to disclose matters to them: see sections 962G and 962T. The matters to be disclosed are:

• the name and contact details of the ‘fee recipient’ (defined in section 962C)
• an explanation of why you are seeking the client’s consent
• the maximum upcoming period before the consent ceases to have effect
• information about the services that the client will be entitled to receive under the arrangement in the upcoming year
• information about either:
• the amount of ongoing fees that the client will pay during the upcoming year, or
• if you cannot determine the amount, a reasonable estimate of the ongoing fees and the method you used to calculate the estimate
• information about the frequency of ongoing fee deductions that the client will pay during the upcoming year
• a statement that the client can terminate the arrangement at any time
• a statement that the arrangement will terminate, and no further advice will be provided or fee charged, if consent is not given
• a date indicating when the arrangement will terminate if consent is not given by the client (see section 962G(2)), and
• any other matters prescribed by regulations (noting no regulations have currently been made for this purpose) (see section 962G(2)(j)).

Additional disclosure

If a client’s written consent is for you to deduct, arrange to deduct or accept ongoing fees, you must include the following additional information in the client consent:

• the name of the account holder and the account number, and
• the amount(s) to be deducted or, if this cannot be determined at the time of the consent, a reasonable estimate of the amount(s) and the method used to work out the estimate (see section 962T).

For more information about ongoing fee arrangements, see Information Sheet 286 FAQs: Ongoing fee arrangements and consents (INFO 286).

Renewal and termination

A client must renew their written consent to an ongoing fee arrangement each year, which requires the same disclosures and written consent obligation that applies upon entry into an ongoing fee arrangement.

The date by which the client must renew their consent (reference day) is the earlier of the date specified in the written consent for this purpose, and the anniversary of the previous specified date or the anniversary of the date on which the ongoing fee arrangement was entered into if it is the first renewal: see section 962H(2).

If the client does not renew their consent in the period that starts 60 days before the reference day and ends 150 days after that day, their consent will cease: see section 962H(1).

An ongoing fee arrangement will also terminate if:

• the client notifies you in writing at any other time (see section 962J), or
• you fail to comply with your obligations in Division 3 of Part 7.7A; this includes:
• not obtaining the client’s consent before deducting, arranging to deduct or accepting deductions of ongoing fees, and
• failing to satisfy the content requirements of a written consent (sections 962F and 962WA).

Where an ongoing fee arrangement terminates, no further fees can be charged under the arrangement and there is no obligation to continue to provide services to the client.

Variation or withdrawal of consent

If you receive notification from a client varying or withdrawing their written consent for you to deduct, arrange to deduct or accept ongoing fees, within 10 business days you must:

• give written confirmation to the client that the notice was received, and
• if a copy of the consent was provided to a third-party account provider – give the account provider a copy of the notice (see section 962U(2)).

The client’s written consent will cease to have effect at the end of 150 days after the anniversary of the day the ongoing fee arrangement was entered into, unless the client:

• terminates the arrangement earlier, or
• renews their consent in relation to the arrangement (see section 962V(1)).

If the written consent ceases, you must notify your client’s account provider within 10 business days of it ceasing: see section 962V(2).