Getting financial advice? What your adviser needs to provide

We all make personal financial decisions every day, whether it’s about how much we can spend, the mortgage we select, or how much we put towards our retirement nest egg.

Despite the important role of personal finance, less than half of all Aussies (48%) rate their overall knowledge of financial matters as being good or better, and just one in ten (11%) rate their knowledge as being very good.

If we don’t rate our financial knowledge as being very good, it’s surprising more of us don’t seek help from an expert like a professional financial adviser.

Asking for assistance can actually reduce the anxiety most of us feel when it comes to our finances. As the AMP 2022 Financial Wellness report noted: “There’s plenty of research showing that people who draw on expert advice – from financial planners, accountants, super funds and more – are less financially stressed and make better decisions.”

In fact, a 2022 report by research consultancy MYMAVINS found people who received advice are “significantly more likely to feel financially secure than those who are unadvised (85% vs 62%), and are more likely to feel very or completely satisfied with their current level of wealth (35% vs 18%).”

Understanding the different types of financial advice

While organising a chat with a financial adviser makes sense, if you haven’t seen one before the process can seem a little daunting.

It’s good to know there are strict rules covering the documents and information your adviser must provide and that they must be working in your best interests.

Financial advice is divided into two main categories:

1. General advice

This type of financial advice is quite broad in nature. It doesn’t take into account your personal objectives, personal financial situation or needs.

The adviser can tell you about the features of a financial product (such as investments, super or insurance), but not about whether it’s suitable for your particular financial situation.

If an adviser is providing general advice, they don’t need to provide you with a Statement of Advice (SOA) and there is normally no fee payable.

2. Personal advice

If you want financial advice that considers your personal goals, needs and financial circumstances, you can choose either:

• Limited or single-issue advice: Covers a particular issue and doesn’t take into account your full financial situation.
• Comprehensive or ‘holistic’ advice: Covers your overall financial situation through a comprehensive financial plan.

When an adviser provides personal advice, they must provide you with a Statement of Advice (SOA), Financial Services Guide (FSG) and Product Disclosure Statement (PDS).

Documents you must receive

In Australia, giving financial advice is highly regulated. It’s largely governed by the Corporations Act 2001 (which requires anyone providing financial product advice to retail clients to comply with certain conduct and disclosure obligations) and is regulated by the Australian Securities & Investments Commission (ASIC).

These obligations are designed to ensure you receive good quality advice and can make informed decisions about the advice. If you receive personal advice, your adviser must give you:

1. Statement of Advice (SOA)

An SOA is a written record of financial advice and is designed to explain what advice you’re getting.

Every SOA is different, but it should contain information about:

• Your risk profile
• The financial advice you’re receiving and the basis for making the recommendations
• Any risks involved with the recommended investment products and strategies
• How the recommended products align with your personal risk profile
• Pros and cons of following the recommendations, including any benefits you may lose if you switch products
• How the recommended products will make money and how they will help you achieve your financial goals
• Reasons for choosing one product over another, or for suggesting you switch providers or super fund
• Any entry, ongoing and exit fees or loss of access (such as insurance cover or product discounts) if you switch products
• Name, contact details and AFS licence number of the providing entity
• Information about the remuneration, commission and other benefits your adviser will receive that might influence the advice
• Details of any interests or relationship that might influence the advice.

An SOA must clearly disclose if the product recommendations in it are based only on products from the AFS licensee’s approved product list (APL). The adviser can only recommend this type of product to you if a reasonable adviser would be satisfied it was in your interests.

The adviser must provide you with an SOA at the same time or as soon as possible after they provide personal advice.

If you’re an existing client, your adviser may provide you with a Record of Advice (ROA) which is a simple record confirming the advice provided. This is shorter and less formal than an SOA and usually simply confirms changes or implementation of advice.

2. Financial Services Guide (FSG)

Your financial adviser is also required to provide you with an FSG when they give you financial product advice. This document is designed to disclose the financial service you’re receiving.

You must receive the FSG early enough that you have sufficient time to consider the information in it before you decide whether or not to use the financial services of the adviser and AFS licensee.

The FSG must include:

• Who will provide the financial service 
• Name, contact details and AFS licence number of the providing entity and authorised representative
• Financial services the entity is authorised to provide
• How the adviser will be paid for their advice
• Remuneration, commission and other benefits the adviser and AFS licensee will receive (including client fees, any form of commission from product issuers and licensees and any ‘soft’ dollar benefits)
• Any relationships that might influence the advice being provided
• Dispute resolution procedures the AFS licensee has in place.

3. Product Disclosure Statement (PDS)

Another key disclosure document you must receive before you invest in any financial product recommended by your adviser is a PDS. These documents are designed to provide you with all the key details about the financial product you’re buying.

ASIC sets rules for what information must be included in a PDS. The document is prepared by the issuer or seller of a financial product (such as the insurer or fund manager) and must contain sufficient information so you can make an informed decision about whether to purchase it.

A PDS must include information on the product’s:

• Key features, characteristics and benefits 
• Fees
• Risks
• Commissions payable
• Complaints handling procedure.

These disclosures help make it easier for you to compare similar financial products and to understand the different options available to you (such as different ways you can pay fees).

Conduct obligations for your financial adviser

As well as giving you the required documents, your adviser must follow several conduct obligations set by ASIC. Advisers are required to:

1. Act in your best interests

When a financial adviser gives personal advice, they must comply with their best interests duty and other related obligations. When providing personal advice, your adviser must prioritise your interests over their own.

These best interest duties are designed to ensure you receive financial advice meeting your objectives, financial situation and needs.

Under these rules, if you follow your adviser’s advice it’s likely to leave you in a better position. It doesn’t mean, however, that the advice will not result in you losing money (such as if investment markets drop).

2. Provide you with appropriate personal advice

Generally, ASIC considers appropriate personal advice has been provided if your adviser has complied with their best interests duty to you and the advice is fit for its purpose.

3. Warn you if their advice is based on incomplete or inaccurate information

An adviser cannot provide appropriate financial advice if they don’t understand or know all your financial circumstances and goals.

4. Prioritise your interests

Your adviser must prioritise your interests if there is a conflict between your interests and the interests of the adviser, AFS licensee or any other related parties.

5. Make reasonable inquires

Your adviser must work with you to obtain complete and accurate information about all your financial circumstances, as this information is used to create your personalised advice statement.

Using simple, clear language

ASIC requires any financial advice given to you must provide clear, concise and effective disclosure.

This means when you receive your SOA, it should be in easy-to-understand language. The tables and graphs in the SOA must be clearly explained, so you can understand them before making a decision.

In addition, the language throughout the SOA must be accurate and consistent and must include a clear statement on how your adviser’s commission will be calculated.