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The Documents Part 9 – SoA (Safe Harbour Port 5)

Safe Harbour Step 5 – relates to product investigations 

Specifically, if it is reasonable to consider recommending a financial product, you as the adviser must:

  1. conduct a reasonable investigation into the financial products that might achieve the goals and objectives of the client; and
  2. assess the information gathered in the investigation.

In some cases, it is not reasonable to recommend an SMSF, given the subject matter of advice sought by the client. Instead, you may need to:

  1. provide the client with advice that is not product specific—this may include the advice to do nothing; or
  2. advise the client to dispose of an SMSF.

Conducting a reasonable investigation 

You are not required to investigate every product available. However, if a client requests that you consider a specific financial product, you must investigate that financial product. The more complex the strategy is, the more you will need to research and investigate suitable products. 

Alternative strategies and products 

As part of your obligation to conduct a reasonable investigation, you need to demonstrate that you have investigated relevant alternative strategies. Details of your investigation do not need to be included in the Statement of Advice but should be kept in your advice records. 

When you give switching advice 

Switching advice is personal advice that is, or includes, a recommendation that:

  1. the client dispose of, or reduce their interest in, all or part of a superannuation fund; and
  2. instead acquire, all or part of an SMSF. This includes where the client’s existing holding is money in a bank account.

When you give switching advice, you need to consider and investigate:

  1. the existing fund(s) (and, if applicable, the relevant option) if it is a financial product that might meet the client’s relevant circumstances;
  2. the new SMSF that the clients could potentially acquire or invest in;
  3. the benefits and disadvantages, including the costs and risks, of both the existing and new products or investment options.

Reasons for switching 

The best interests duty, and related obligations, affect your switching recommendations in that:

  1.  the previous ‘reasonable basis’ test no longer applies and the relevant test is now the best interests duty (safe harbour steps);
  2. there is a stronger onus on you to prove that the client will benefit from advice where you may also benefit;
  3. you need to consider the client’s existing product (e.g. benefits, costs, features) and justify how the client will benefit from switching out of their existing product;
  4. advice will generally be appropriate if (ASIC’s view):
  5. it the net benefits of the new product outweighs the existing product;
  6. there are overall cost savings for the client and the cost savings are likely to override the loss of benefits. 

Disclosure  

When you give switching advice, you need to disclose in your Statement of Advice:

  1. any charges the client will or may incur in respect of the disposal or reduction (of the old product);
  2. any charges the client will or may incur in respect of the acquisition or increase (of the new product);
  3. any pecuniary or other benefits that the client will or may lose (temporarily or otherwise) as a result of taking the recommended action; and
  4. information about any other significant consequences for the client of taking the recommended action that the providing entity knows, or ought reasonably to know, are likely.
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The Documents Part 8 – Statement of Advice (SoA)

Statement of Advice

The Statement of Advice is the document provided to a client where an adviser will summarise and prioritize their objectives, document the research, recommend what the client does, outline all fees, provide disclaimers and education guides and have the client agree, disagree or agree with changes on whether to proceed.

For SMSF advice this document is 25 to 35 pages long.

Retail clients who rely on personal advice may suffer significant loss if the advice is conflicted or is not of good quality. For this reason, the law imposes specific obligations on persons who provide personal advice to retail clients.

Failure to comply with the law may result in a civil penalty against an authorised representative and you as the adviser, may be subject to administrative sanctions for a breach of the obligations (e.g. being banned from providing financial services for a period of time).

A client, or ASIC, may take civil action for any loss or damage suffered as a result of a failure to comply with the best interests duty and related obligations.

ASIC is more likely to take the view that processes for complying with the best interests duty are not effective, if an advice model typically leads to a one-size-fits-all outcome that is, the processes do not allow each client’s relevant circumstances to be taken into account, or result in advice that does not reflect the client’s relevant circumstances.

The Statement of Advice document is complex and accountants will find it difficult.

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The Documents Part 7 – Needs Analysis (Conclusion)

Risk Profile Assessment

Although not licensed to provide investment advice a standard element of advising on SMSF is determining whether the investor profile is suitable for such a responsibility.

Members who are assessed at the extreme ends of the profile need to be provided some commentary on whether an SMSF is suitable.

For example, if two members are both very aggressive investors the investment strategy needs to limit the extent of investments which may put the balance of the fund at risk. On the other hand members with very conservative risk profiles may not have the capability to even operate an SMSF and an advisor ought to recommend external course to increase their knowledge and confidence.

Anti-Money Laundering

An adviser is responsible for determining the identity of all members within an SMSF to capture the roll-over of funds from a superannuation fund that is not an SMSF (the transferring fund) to an SMSF (the receiving fund).

This means the transferring fund will have AML obligations to which it will rely on the adviser, to complete. This is a simple task where either the details contained on a Drivers’ License or Passport are added and a copy of the document is taken for the file.

As to the winding up of a SMSF or income streams from an SMSF, there does not appear to be anything in the AML Act which says that a SMSF has AML obligations.

Conclusion of Adviser Best Interest Duty

FWGS has designed the portal to minimize breaching the best interest duty by ensuring that the relevant aspects of a client’s personal circumstances and financial situation are covered.

The portal compiles the information so at the conclusion of the discussion a document is printed for the clients to sign along with the anti-money laundering and risk profile.

The original signature is retained in the file.

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