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When you see financial advisers, there are clear rules covering the documents and information they need to provide so you know the advice is in your best interests and it will help you to make an informed decision.
According to the Sunsuper Value of Advice Report, 77% of people who have received financial advice believe it has helped them feel prepared for retirement, with 80% believing it gave them more peace of mind.
So if you plan to see a financial adviser, what should you get from them following your initial consultation?
Understanding the different types of financial advice
The documents you receive from a financial adviser depend on the type of advice you receive. Broadly, financial advice is classified as general advice or personal advice:
1. General advice: Broad in nature and doesn’t take into account your objectives, personal financial situation or needs. The adviser can tell you about the features of a financial product, but not about how it fits with 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.
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2. Personal advice: Considers your goals, needs and financial circumstances. You choose the level of personal advice you receive:
- Limited or ‘scaled’ advice: Covers a particular issue and doesn’t take into account your full financial situation.
- Full 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.
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 are getting.
Your SOA should contain:
- Your risk profile
- A statement setting out the financial advice and the basis for making those 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 by switching 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 must provide you with an SOA at the same time or as soon as possible after they provide personal 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 what financial service you are getting.
The FSG must be provided so you have enough time to consider the information before you decide whether to use the financial services of the adviser and AFS licensee.
The document must include information on:
- 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 the advice they provide
- Remuneration, commission and other benefits the adviser and AFS licensee will receive, including client fees, commissions from product issuers and licensees (such as upfront and trailing commissions), and any ‘soft’ dollar benefits
- Any relationships that might influence the advice
- 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 a financial product recommended by your adviser is a PDS. These documents are designed to disclose the details of the financial product you are buying.
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ASIC sets rules for what 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 the financial product.
To meet the requirements of the Corporations Act, a PDS must include information on:
- Key features and characteristics of the financial product
- Benefits of the product
- Product fees
- Risks of the product
- Commissions payable on the product
- Complaints handling procedure.
These disclosures are to make it easier for you to compare similar financial products and to understand the different options available to you within the product (for example, different ways you can pay the product fees).
Conduct obligations for your financial adviser
As well as giving you the required documents, your adviser must also 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 related obligations. This means if you follow their advice, it’s likely to leave you in a better position. It doesn’t mean the advice cannot result in you losing money (for example, if investment markets drop).
These best interest duties and obligations are designed to ensure you receive advice that meets your objectives, financial situation and needs, and your adviser acts in your best interests.
2. Provide you with appropriate personal advice
ASIC considers appropriate personal advice has been provided to you if your adviser complies with their best interests duty 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 related parties.
5. Make reasonable inquires
Your adviser must work with you to obtain complete and accurate information about all your financial circumstances.
Using simple, clear language
Any financial advice given to you must provide clear, concise and effective disclosure.
When you receive an SOA, it should be presented in easy-to-understand language. This includes tables and graphs that are clearly explained, so you can understand them before making a decision.
The language in the SOA must be accurate and consistent throughout the document and must include a clear statement on the method of calculating the adviser’s commission.