Safe Harbour Step 5 – relates to product investigations
Specifically, if it is reasonable to consider recommending a financial product, you as the adviser must:
- conduct a reasonable investigation into the financial products that might achieve the goals and objectives of the client; and
- 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:
- provide the client with advice that is not product specific—this may include the advice to do nothing; or
- 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:
- the client dispose of, or reduce their interest in, all or part of a superannuation fund; and
- 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:
- the existing fund(s) (and, if applicable, the relevant option) if it is a financial product that might meet the client’s relevant circumstances;
- the new SMSF that the clients could potentially acquire or invest in;
- 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:
- the previous ‘reasonable basis’ test no longer applies and the relevant test is now the best interests duty (safe harbour steps);
- there is a stronger onus on you to prove that the client will benefit from advice where you may also benefit;
- 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;
- advice will generally be appropriate if (ASIC’s view):
- it the net benefits of the new product outweighs the existing product;
- there are overall cost savings for the client and the cost savings are likely to override the loss of benefits.
When you give switching advice, you need to disclose in your Statement of Advice:
- any charges the client will or may incur in respect of the disposal or reduction (of the old product);
- any charges the client will or may incur in respect of the acquisition or increase (of the new product);
- any pecuniary or other benefits that the client will or may lose (temporarily or otherwise) as a result of taking the recommended action; and
- 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.
Other articles in this series:
- The Documents Part 1 – Introduction
- The Documents Part 2 – Financial Services Guide (FSG)
- The Documents Part 3 – Needs Analysis (Introduction)
- The Documents Part 4 – Needs Analysis (Safe Harbour Port 1)
- The Documents Part 5 – Needs Analysis (Safe Harbour Port 2)
- The Documents Part 6 – Needs Analysis (Safe Harbour Port 3)
- The Documents Part 7 – Needs Analysis (Conclusion)
- The Documents Part 8 – Statement of Advice (SoA)
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