To provide financial product advice, you must be authorised by an Australian financial services (AFS) licensee that has the necessary licence authorisations that apply to your advice business. There are different obligations placed on individuals and AFS licensees so it is essential you understand the capacity in which you are providing financial services.
A financial service includes (among other things):
providing financial product advice, or
dealing in a financial product.
Arranging for a person to engage in certain conduct, such as applying for or acquiring a financial product, will constitute dealing unless it amounts to providing financial product advice or is exempt. For more information, see Regulatory Guide 36 Financial product advice and dealing (RG 36)
When providing financial product advice, different obligations apply depending on whether you are providing personal advice or general advice, and whether the client is a retail or wholesale client. See Definitions that apply to personal advice providers.
‘Personal advice’ is where the person giving the financial product 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 these matters. All other financial product advice is ‘general advice’.
Factual information is objectively ascertainable information, the truth or accuracy of which cannot reasonably be questioned. Good quality factual information can often be useful for clients wishing to better understand the financial products or strategies available to them. You do not need to hold an AFS licence to give factual information to clients.
A client will be a ‘retail client’ unless they satisfy one of the requirements to be a ‘wholesale client’. See Regulatory Guide 175 AFS licensing: Financial product advisers – Conduct and disclosure (RG 175) for information about who is a retail client.
Entities that provide financial product advice to retail clients have certain obligations including disclosure and design and distribution obligations.
Financial services disclosure obligations
Entities that provide financial product advice to retail clients must prepare and make available a Financial Services Guide (FSG), give a general advice warning when giving general advice, and prepare and provide a Statement of Advice (SOA) when giving personal advice.
Individuals who provide personal advice to retail clients on relevant financial products must comply with the ‘best interests duty’ and related obligations, which have been introduced as part of the Australian Government’s Future of Financial Advice (FOFA) reform package to improve the quality of financial advice received by retail clients.
If you give personal financial advice to retail clients you must provide a Statement of Advice (SOA). An SOA is a document that helps a retail client understand, and decide whether to rely on, personal advice.
The SOA, among other financial advice disclosure obligations, aims to ensure that your clients receive good quality advice and are able to make informed decisions.
Regulatory Guide 90 Example Statement of Advice: Scaled advice for a new client (RG 90)
Record of Advice
Sometimes, you can rely on specific exemptions from giving a statement of advice (SOA) when providing personal advice to retail clients if you meet certain requirements. A Record of Advice (ROA) is a simple record that confirms the advice provided by an advice licensee or a relevant provider. The ROA is similar to an SOA but shorter and less formal.
For information about records of advice see Information Sheet 266 FAQs: Records of Advice (ROAs) (INFO 266) which attaches example ROAs.
Design and distribution obligations
The design and distribution obligations (DDO) apply to issuers and distributors of financial products who engage in retail product distribution conduct. AFS licensees and relevant providers are considered ‘distributors’ under the obligations when providing financial product advice.
While AFS licensees and relevant providers are exempt from meeting the reasonable steps obligation under the DDO regime when providing personal advice, there are reporting and record-keeping obligations that apply to them when providing personal advice.
These obligations include reporting to the product issuer:
information about the number of complaints a relevant provider has received about a product;
any information that the product issuer specifies in the target market determination (TMD) to promptly identify a ‘review trigger’ or another event or circumstance that would suggest a TMD is no longer appropriate; and
significant dealings in a product that are inconsistent with a product’s TMD.
You must also keep records in relation to personal advice you have provided on a product, including but not limited to, information about complaints and ‘review triggers’.
While AFS licensees and relevant providers providing personal advice are exempt from taking reasonable steps to ensure products are distributed consistently with the TMD, we expect you to consider the TMD as part of meeting the best interests duty in the same way you would consider other sources of research or information about a financial product.
Related information
Regulatory Guide 274 Product design and distribution obligations (RG 274)
Information Sheet 264 FAQs: Design and distribution obligations for advice licensees and financial advisers (INFO 264).
