The Australian Securities and Investments Commission (ASIC) has today published an example Statement of Advice (SOA) illustrating its interpretation of clear, concise and effective advice and disclosure in a specific financial advice scenario.
The example SOA is one of the eight projects ASIC is doing as part of the Federal Government’s Proposals Paper: Refinements to Financial Services Regulation issued on 2 May 2005.
‘ASIC agreed to develop an example SOA in response to the Federal Government’s paper, which identified a need for more guidance on SOAs’, Mr Jeremy Cooper, ASIC Deputy Chairman said.
‘In doing this project, ASIC’s aim was to publish an example of an SOA that was clear, concise and effective in 20 pages or less. We did better than that. Our example SOA is only 12 pages long’, Mr Cooper said.
‘ASIC’s example shows that you don’t need a great pile of paper to meet the SOA requirements and can provide comprehensive information in a much shorter format. This example reinforces our concerns about 80-page SOAs issued by some advisers’, Mr Cooper said.
The example SOA was developed on the basis of a hypothetical financial planning scenario developed in consultation with financial planning experts. It deals with personal advice about personal insurance, investing in managed funds and basic deposit products.
ASIC is looking to industry to produce other example SOAs in specific areas such as advice on establishing a share portfolio, a ‘whole of life’ financial plan and an SOA focused on superannuation issues. ASIC might release further example SOAs, depending on the extent to which industry engages in this process.
‘ASIC’s example SOA has been designed as an illustrative aid. We encourage industry to become familiar with the example SOA and to adapt its style and approach in their SOAs (as appropriate)’, Mr Cooper said
‘ASIC does not intend to assess any adviser’s SOA against the example SOA in a compliance review. It is just an example and is not supposed to reflect the ‘perfect’ SOA either. We were particularly careful not to produce an example that would take an unrealistic and uncommercial amount of effort to prepare in a real-life situation. It is not a template that can be used in all situations. It provides a simple way for ASIC to communicate what we think an SOA dealing with these issues should look like. Licensees and their advisers should look at the general approach, rather than the specific details, of the example SOA’, Mr Cooper said.
The example SOA provides some important insights into what ASIC thinks is important in SOAs. These are:
- length – the example SOA is only 12 pages long;
- there are no ‘weasel words’ (i.e. lengthy disclaimers and exclusions);
- it is written in simple, plain English;
- there is adequate disclosure of conflicts, fees and commissions; and
- there is a clear explanation of the scope and limitations of the advice.
The example SOA has been released with a guide that explains how and why ASIC developed the example SOA. The guide:
- sets out the purpose of the example SOA (Section 1);
- outlines the framework in which the SOA was developed (Section 2); and
- explains why certain information has been included, or not included (Section 3).
The example SOA is set out in Appendix B of the guide and the financial advice scenario is set out at Appendix A.
Compliance during the FSR refinements implementation process
ASIC’s example SOA does not include information about other products or strategies that were considered by the adviser, but were not ultimately recommended to the clients.
The Government intends to amend the Corporations Regulations 2001 to clarify that such information does not have to be included in an SOA: see refinement proposal 2.2.
Prior to the amendment, ASIC does not expect:
- advisers to include this information in their SOAs: see Information Release [IR 05-28] ASIC compliance guidance on the FSR refinement proposals and fees template requirements (3 June 2005); or
- Australian financial service licensees to report failure to include this information in an SOA as part of their breach reporting obligations.
End of release