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04-236 ASIC provides further guidance on statements of advice
The Australian Securities and Investments Commission (ASIC) has provided further guidance on how it expects licensees (and their representatives) to prepare Statements of Advice (SOAs).
The guidance should assist industry in producing SOAs that are clear, concise and effective, as required under the Corporations Act. This guidance complements earlier guidance issued by ASIC as part of its implementation of the Financial Services Reform Act.
ASIC has also announced the release of a new class order, [CO 04/0576] Statements of Additional Advice, to facilitate shorter SOAs in the context of an ongoing client relationship: see Information Release [IR 04/034]ASIC facilitates shorter statements of advice. This class order will allow the production of documentation that in some cases consists of no more than a few pages.
‘Statements of Advice are intended to help consumers make an informed decision about whether or not to follow the advice provided by their financial adviser. This advice should take into account the consumer’s specific needs. ASIC therefore expects these documents to be easy to read and understand’, ASIC Executive Director of Financial Services Regulation, Mr Ian Johnston said.
‘However, we recognise industry concerns about the volume of documentation currently being produced and have issued this guidance to clarify our expectations in relation to the provision of clear, concise and effective SOAs’, Mr Johnston said.
The guidance forms part of ASIC’s ongoing commitment to facilitate and promote the production of clear, concise and effective disclosure in SOAs and other disclosure documents: see Media Release [MR 04/062] FSR disclosure to be clear, concise and effective and Information Release [IR 04/11] ASIC’s approach to regulation of financial services: breach notification and disclosure.
Clear, concise and effective SOAs
When preparing SOAs, advisers should keep the following in mind:
- ASIC believes that the existing SOA provisions are very flexible, and expects that advisers will take a flexible approach to their SOAs. For example, ASIC expects them to generally provide short and simple SOAs in relation to short and simple advice.
- Extraneous information (i.e. information that the law does not actually require to be included in the SOA, such as detailed research) should not be included if it results in the SOA not being clear, concise and effective. Where extraneous information is included, it should be clearly distinguishable from the mandatory information.
- The clear, concise and effective obligation does not mean that information required by the SOA content provisions can be left out. Rather, the clear, concise and effective obligation affects the way that an adviser presents the required information. This includes trying to present the information in as brief a manner as reasonably possible, without compromising its accuracy.
- The most important information in an SOA should be highlighted, e.g. in an executive summary that summarises the most important information and indicates where more detail can be obtained. This is especially important where the SOA is long (say, more than 10 pages).
- The longer the SOA, the more important will be the inclusion of navigational aids such as a table of contents.
- Legal, industry or technical jargon should be avoided, especially where advice is provided to relatively unsophisticated clients.
- There is no one ‘correct’ or ‘ideal’ format for an SOA – the law provides flexibility in tailoring the format and presentation to the particular information needs of consumers. In this regard, consumer testing can help advisers assess the effectiveness of various disclosure formats.
Advisers should also refer to guidance ASIC has already issued about disclosure documents: see Policy Statement 168 Disclosure: Product Disclosure Statements (and other disclosure obligations) [PS 168], which includes the Good Disclosure Principles, and Policy Statement 175 Licensing: Financial product advisers – conduct and disclosure [PS 175].
‘We are keen to continue working with industry to achieve the goal of more effective disclosure, and we encourage advisers to work towards producing more consumer-focused documents as confidence with the new regime grows’, Mr Johnston said.
End of release
Download a copy of
- Policy Statement 168 Disclosure: Product Disclosure Statements (and other disclosure obligations) [PS 168]
- Policy Statement 175 Licensing: Financial product advisers – conduct and disclosure [PS 175]