As a client, you may have heard about the importance of a Statement of Advice (SoA) in the financial planning process. But, do you know when an SoA is required?
Legal requirements that help determine when an SoA is needed
When it comes to creating an SoA, there are specific legal requirements that financial advisers and their support staff must adhere to.
Explanation of the “best interests duty”:
As of 2021, financial advisers are obligated to act in the best interests of their clients. This means that advisers must prioritise their clients’ interests over their own, and ensure that their advice is tailored to their client’s specific needs and circumstances.
Financial Services Licensee’s obligations:
Financial services licensees (FSLs) are responsible for ensuring that their advisers comply with legal requirements when providing advice to clients. This includes ensuring that advisers have the necessary qualifications, skills, and knowledge to provide advice and that they adhere to the licensee’s policies and procedures.
Compliance with Australian Securities and Investments Commission (ASIC) regulations:
The Australian Securities and Investments Commission (ASIC) is responsible for regulating the financial services industry in Australia. ASIC sets out rules and guidelines that financial advisers must follow when providing advice to clients. This includes requirements around record-keeping, disclosure, and conflict-of-interest management.
Situations and examples of when a statement of advice is required
It’s important to note that these are not the only situations that may require an SoA. Other circumstances may arise that require an SoA to be prepared. As such, it’s always best to consult with a professional paraplanner or financial adviser to ensure that you’re meeting all legal requirements and providing the best advice possible to your clients.
When providing personal advice
If a financial adviser provides personal advice to a client, they must prepare an SoA that outlines the advice given and the basis for that advice. Personal advice is advice that is tailored to a client’s specific financial circumstances, objectives, and needs.
When making a recommendation to acquire or dispose of a financial product
If a financial adviser recommends that a client acquire or dispose of a financial product, they must prepare an SoA that outlines the recommended product and the basis for that recommendation. This is to ensure that the client is fully informed of the risks and benefits of the recommended product.
When there is a change in a client’s circumstances:
If a client’s circumstances change, such as a change in their income or employment status, their financial adviser may need to update their advice. In this case, the financial adviser must prepare an SoA that outlines the updated advice and the basis for that advice.
When the financial adviser recommends a new product or strategy:
If a financial adviser recommends a new financial product or strategy to a client, they must prepare an SoA that outlines the recommended product or strategy and the basis for that recommendation. This is to ensure that the client is fully informed of the risks and benefits of the new product or strategy.
Situations where a statement of advice is not required
While an SoA is typically required in most situations where financial advice is given, there are some circumstances where an SoA is not required.
It’s important to note that while an SoA may not be required in these situations, financial advisers are still obligated to act in the best interests of their clients and to comply with all other legal requirements, such as disclosure requirements.
General advice:
If a financial adviser provides general advice to a client, an SoA is not required. General advice is advice that is not tailored to a client’s specific financial circumstances, objectives, or needs. An example of general advice might be an article or blog post that provides general information about a particular financial product or strategy.
Execution-only service
If a client already knows what financial product they want to acquire or dispose of, and the financial adviser is only facilitating the transaction (i.e. providing an execution-only service), an SoA is not required.
Class of product service
If a financial adviser provides advice on a class of financial products rather than a specific product, an SoA may not be required. An example of this might be advice on a particular type of investment, such as shares or property.
What should be included in a statement of advice when they’re required?
Learning more about “What is a Statement of Advice?”, to create an effective SoA at a time when they’re required, the following key components should be included:
- Key components of an SoA, including contact details, date of advice, and statement about the advice’s basis.
- Client’s financial objectives and current situation to tailor the advice to their needs.
- Summary of recommended strategies and products, with an explanation of how they meet the client’s objectives.
- Clear and concise explanation of the risks and benefits of the recommended strategies and products.
- Other important information, such as fees, conflicts of interest, and alternative strategies/products for the client to consider.
By including these key components, financial advisers can ensure that their clients are fully informed and confident in their financial decisions.
For help with statement of advice requirements
How SoAs help clients and why they’re required
Creating a Statement of Advice (SoA) is a crucial step in the financial planning process as they provide a clear and concise summary of the financial advice given, and helps to ensure that clients are fully informed and confident in their financial decisions. It’s because of this that they will be required during situations where providing personal advice or important financial decisions.
When a statement of advice is required
An SoA is required when providing personal advice, making a recommendation to acquire or dispose of a financial product, when there is a change in a client’s circumstances, or when recommending a new product or strategy.
An SoA is not required when providing general advice, an execution-only service, or a class of product advice. An SoA should include the financial adviser’s contact details, the date of the advice, the client’s financial objectives and situation, recommended strategies and products, an explanation of risks and benefits, and any other important information.
When to seek help for a statement of advice
If you’re unsure about the requirements for creating an SoA, it’s always best to seek professional paraplanning services offering statement of advice services to ensure that you’re meeting all legal requirements and providing the best advice possible to your clients.
