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The Documents Part 3 – Needs Analysis (Introduction)

Under the Future of Financial Advice (FoFA) Reforms, there is a specific requirement under law to act in the best interests of your client when providing personal advice (‘the best interests duty’).

The new requirements have been introduced with the aim to improve the quality of advice and ensure that the advice you give is:

  1. appropriate for the client;
  2. in the client(s) best interests; and
  3. that the client(s) priorities rank ahead of your own

Prior to the FoFA reforms, responsibility for the advice given by advisers previously rested with the licensee. Under FoFA, each individual adviser (i.e. not the licensee), will be responsible for the advice they give and may face civil or administrative sanctions should they breach their obligations under the law.

Acting in the client’s best interests

You need to demonstrate that you have acted in your client’s best interests when you give personal advice. To do so you need to demonstrate that you have satisfied each of the following:

  1. that a ‘reasonable advice provider’ would conclude that the client would be likely to be in a better position as a result of your advice; and
  2. that you have complied with the safe harbour steps.

When administering the law, ASIC will ask whether a ‘reasonable advice provider’ would believe that the client is likely to be in a better position if they follow your advice.

Safe Harbour Steps

Complying with the seven safe harbour steps will assist you demonstrate that you have acted in the client’s best interests under law. The Needs Analysis document demonstrates that an advisor knows their client which satisfies the first three ports of the safe harbor.

  1. Identify the client’s circumstances through client’s instructions
  2. Identify from the client’s instructions, their objectives, financial situation, and needs. Where possible, try to capture this information in the client’s own words.
  3. Identify the subject matter of the advice and the client’s relevant circumstances

Safe Harbour Step 1 is detailed in the next article.

Other articles in this series

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