Limited AFS licensees: Advice conduct and disclosure obligations
This is Information Sheet 228 (INFO 228). It sets out the conduct and disclosure obligations that apply to a limited Australian financial services (AFS) licensee and, in some cases, a representative of a limited AFS licensee when providing advice to retail clients.
Note: In this information sheet, all section references are to the Corporations Act 2001 (Corporations Act), unless otherwise specified.
Preparing and providing a Financial Services Guide
As a limited AFS licensee, you must prepare a Financial Services Guide (FSG) for the retail clients you provide financial services to. Typically, an FSG must be given to the client as soon as you realise that you are likely to provide a financial service to them and before the financial service is provided: see sections 941A, 941B and 941D(1) of the Corporations Act.
If you are providing financial product advice, you do not have to give an FSG if you have made the statements and information required to be in the FSG available on your website (website disclosure information): see section 941C(5A).
There are specific rules about what information must be included in an FSG or in website disclosure information: see Information Sheet 291 FAQs: FSGs and website disclosure information (INFO 291). Generally, these rules are designed to ensure that retail clients are given sufficient information to enable them to decide whether to obtain financial services from you.
Best interests duty and related obligations
If you provide personal advice to a retail client (even if the scope of the advice is limited to a specific issue), you must:
When providing personal advice to a retail client, you must act in their best interests in relation to that advice: see section 961B. We refer to this as the ‘best interests duty’.
When assessing whether you have complied with the best interests duty, we will consider whether, at the time the advice is given, a reasonable advice provider would believe that your client is likely to be in a better position if they follow your advice.
Scaled advice
The advice that you provide to a retail client can be ‘scaled’ or ‘limited in scope’. For example, you might scale or limit the scope because the client requests it or because you suggest it on the basis that your limited AFS licence authorisations only allow you to provide a limited scope of advice.
However, you must use your judgement when deciding on the scope of the advice and define the scope in a way that is still in your client’s best interests – that is, in a way that is consistent with their relevant circumstances and the subject matter of the advice they are seeking.
It is important that you make clear to your client, from the outset, the scope of the advice you are providing.
Example: Retail client seeking advice about switching superannuation funds
Your client asks for advice about whether they should switch from their current superannuation fund that is regulated by the Australian Prudential Regulation Authority (APRA) to another APRA-regulated superannuation fund (APRA regulated fund). Your limited AFS licence authorises you to provide financial product advice about self-managed superannuation funds (SMSFs), but does not authorise you to provide financial product advice about particular superannuation products other than the client’s existing product.
If, in this circumstance, you scale the advice so that you only give advice about establishing an SMSF without considering whether your client should make the switch they have asked about, we would not consider that you had demonstrated compliance with the best interests duty. This is because that is not what the client asked for advice on. As you are not authorised to give advice on the superannuation fund that the client has asked about, you should decline to give the advice.
‘Safe harbour’ steps
One way to satisfy the best interests duty is to show that you have taken the ‘safe harbour’ steps set out in section 961B(2). If you do not take these steps, we expect you to take other steps that would, at a minimum, produce the same standard of advice for the client as if the safe harbour steps had been complied with.
To comply with the safe harbour steps, you must:
identify the objectives, financial situation and needs of your client that were disclosed by your client
identify:
the subject matter of the advice sought by your client (whether explicitly or implicitly)
the objectives, financial situation and needs of your client that would reasonably be considered relevant to advice sought on that subject matter (client’s relevant circumstances)
if it is reasonably apparent that the information you have about your client’s relevant circumstances is incomplete or inaccurate, make reasonable inquiries to obtain complete and accurate information
assess whether you have the expertise required to provide your client with advice on the subject matter sought and, if not, decline to provide the advice
if it would be reasonable to consider recommending a financial product (such as an interest in an SMSF):
conduct a reasonable investigation into the financial products that might achieve the objectives and meet the needs of your client and that would reasonably be considered relevant to advice on that subject matter (e.g. in the case of an SMSF recommendation concerning the client’s existing superannuation fund(s) and the SMSF, if you have the authorisation to provide class of product advice about superannuation, you may also wish to consider non-SMSF self-directed or ‘do-it-yourself’ superannuation products generally)
assess the information gathered in the investigation
base all judgements in advising your client on their relevant circumstances, and
take any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of your client, given their relevant circumstances.
For more information on how we assess compliance with the best interests duty, see Section D of Regulatory Guide 175 AFS licensing: Financial product advisers—Conduct and disclosure (RG 175). Appendix 2 to RG 175 includes two examples of the process that we would apply when reviewing your personal advice to determine whether you have complied with the best interests duty.
See also Table 12 in Appendix 3 to Report 515 Financial advice: Review of how large institutions oversee their advisers (REP 515), which is a checklist of issues that should be considered when personal advice is being reviewed to determine whether the best interests duty and related obligations have been met. As well as helping you to prepare advice, this checklist will help when you carry out audits of the advice given to your clients.
Personal advice must only be provided to a retail client if it would be reasonable to conclude that the advice is appropriate for them, assuming that the best interests duty had been complied with: see section 961G. This means that you are assumed to know all the information about the client, strategy and product (if any) that you would know if you had properly complied with the best interests duty.
We consider that advice is appropriate if it would be reasonable to conclude, at the time the advice is provided, that:
it is fit for its purpose – that is, following the advice is likely to satisfy the client’s relevant circumstances, and
the client is likely to be in a better position if they follow the advice.
For more information on your obligation to provide appropriate advice, see Section D of RG 175.
You must make reasonable inquiries to obtain complete and accurate information about a retail client’s relevant circumstances when providing personal advice. If, after making these inquiries, it is reasonably apparent that you have based your advice on incomplete or inaccurate information about your client’s relevant circumstances, you must warn your client: see section 961H.
The warning should say that:
the advice is, or may be, based on incomplete or inaccurate information, and
because of this, your client should consider the appropriateness of the advice – taking into account their objectives, financial situation and needs – before acting on it.
For more information on your obligation to give a warning if advice is based on incomplete or inaccurate information, see Section D of RG 175.
You must prioritise a retail client’s interests if, when you give advice, you know or reasonably ought to know that there is a conflict between the interests of the client and your interests or the interests of an associate of yours (e.g. a director of the entity that is the limited AFS licensee or a related entity): see section 961J.
To comply with this obligation, you should first identify what interests you and your associates have. An interest includes any benefits that you or your associates may receive if your client adopts your advice. For example, if you advise your client to establish an SMSF and you would receive payment for assisting to establish the SMSF and its ongoing administration if they did so, these would be interests. Another example might be if a partner in your firm (i.e. an associate) stands to receive fees from the client for auditing the client’s SMSF.
While the obligation to prioritise the interests of your client when giving advice does not prevent you from having these interests, you must ensure that you do not act to further your interests or those of one of your associates over those of your client when giving your advice. In complying with this obligation, you should consider what a reasonable advice provider without a conflict of interest would do.
For more information on how we administer the obligation to prioritise clients’ interests, see Section D of RG 175.
Complying with the best interests duty when providing advice about SMSFs
One of the key things that you are likely to provide advice on is whether your client should establish an SMSF. SMSFs are suitable for some, but not all, clients. Setting up an SMSF is a significant step and may have serious consequences for your client, their retirement savings and their insurance cover.
We have prepared specific guidance about providing advice on establishing an SMSF in Information Sheet 274 Tips for giving self-managed superannuation fund advice (INFO 274).
Further considerations are:
One issue to pay particular attention to is your client’s need for appropriate and affordable life insurance (including death and total and permanent disability insurance), and the effect that establishing and rolling their superannuation money over into an SMSF may have on your client’s existing cover. A lack of life insurance may have very real and significant consequences for your client.
Before recommending that your client establishes an SMSF, you should:
explain the importance of maintaining life insurance by providing factual information and educational material, and
inform them that life insurance might be more expensive and harder to obtain for SMSFs than for larger APRA-regulated funds.
There might be circumstances where you can provide advice about establishing an SMSF without discussing life insurance in more detail. For example, your client might not have life insurance through their existing superannuation product and might have confirmed that they do not want life insurance advice. Because many consumers are not aware that they have life insurance through their superannuation, we would expect you to take reasonable steps to verify that they do not hold life insurance through their existing superannuation before proceeding on that basis.
Other circumstances where you can provide advice about establishing an SMSF without discussing life insurance would be when your client tells you that they:
hold adequate life insurance outside their superannuation, or
consider they have sufficient other assets and do not require life insurance.
In cases where you do provide advice about establishing an SMSF without discussing life insurance, you should make it clear to your client that you are not providing life insurance advice and you should explain the basis on which you did not consider this advice to be necessary. We would also expect you to note this in the Statement of Advice (SOA) that you give to your client: see ‘Preparing and providing a Statement of Advice’. You should also explain to your client the potential downside, if any, of not receiving advice on this aspect of their personal circumstances.
Other than those limited circumstances described above where life insurance advice may be ‘scoped out’, you should do the following if you are advising a retail client on whether to establish an SMSF:
if your limited AFS licence authorises you to provide financial product advice on a client’s existing superannuation product to the extent required for making a recommendation to establish an SMSF – explain the life insurance held within their existing superannuation (e.g. the type of cover and the level of cover), if relevant, and/or
if your limited AFS licence authorises you to provide class of product advice on life insurance products – give advice about the kind and level of life insurance that your client should hold, whether inside or outside superannuation (but you may not recommend a specific product).
You should also recommend that your client seek specific life insurance advice from a suitably authorised advice provider and:
wait for the life insurance advice to be provided to them before establishing the SMSF
if they choose to purchase life insurance directly from a life insurer, wait until that has occurred, or
if your limited AFS licence authorises you to provide financial product advice on a client’s existing superannuation product to the extent required for making a recommendation to establish an SMSF, recommend that your client:
maintain a minimum balance in their existing superannuation fund
if needed to maintain the insurance cover under their existing fund’s rules – continue to direct contributions to that fund.
When discussing with your client whether they should maintain a minimum balance in their existing superannuation fund, you should make them aware that:
you are not giving them any recommendation or opinion about whether the cover in their existing superannuation fund is adequate or appropriate for them
there are costs and disadvantages associated with belonging to more than one fund, and
the balance in an APRA-regulated superannuation fund may reduce to a point where there is no member benefit left to pay the insurance premium, requiring the client to make arrangements to cover the shortfall.
For more information about assessing the suitability of SMSFs and the risks, costs and additional considerations for SMSFs, see INFO 274.
If your limited AFS licence allows you to make recommendations about a retail client’s existing superannuation fund, you can do so to the extent needed when making a recommendation to establish an SMSF or when providing advice about contributions or pensions.
Because of the importance of ‘super switching advice’ (i.e. advice to transfer some or all of a client’s existing superannuation money from one superannuation fund to another, or advice to redirect future contributions away from one superannuation fund to another), we have provided specific guidance for advisers who provide this kind of advice in Information Sheet 182 Super switching advice – Complying with your obligations (INFO 182). As we explain in INFO 182, you must:
Consider whether there is an overall advantage from the switch – We are likely to look more closely at a recommendation that your client switch all or part of their balance or the direction of their future contributions (e.g. from an APRA-regulated fund to an SMSF) if there is no obvious overall advantage to them in making the switch. In particular, we will look closely at:
whether the advice is appropriate for the client
whether you have acted in the client’s best interests when providing the advice, and
the disclosure given to the client about conflicts, fees and the basis for the advice.
Accurately describe the features of the ‘to’ fund – It might be misleading to describe a feature of the ‘to’ fund (the ‘to’ fund might be the SMSF if that is being newly established) as a benefit of making the switch unless that feature satisfies a client’s needs or objectives and is not already available in the ‘from’ fund (e.g. the APRA-regulated fund they are currently invested in).
Additional information will also need to be included in your SOA if you provide switching advice: see ‘Content of an SOA’.
Preparing and providing a Statement of Advice
If you provide personal advice to a retail client, you must prepare and provide your client with an SOA. Generally, this is provided at the same time as, or as soon as practicable after, the advice is provided: see sections 946A and 946C. The purpose of the SOA is to help your client understand, and decide whether to rely on, the personal advice you give them.
There are detailed requirements about what you must include in an SOA. All SOAs must set out, in a clear, concise and effective manner:
the advice and the reasoning that led to the advice
information about certain remuneration and benefits that you and certain related parties will receive, or reasonably expect to receive
all conflicts of interest that may affect the advice, and
the costs, loss of benefits and other significant consequences when recommending switching between financial products (e.g. out of an APRA-regulated fund and into an SMSF).
See Regulatory Guide 90 Example Statement of Advice: Scaled advice for a new client (RG 90), which includes guidance and an example SOA based on a hypothetical and limited financial advice scenario.
However, there are some limited instances when an SOA is not required. For example, you do not need to give your client an SOA about further advice you give them if:
you have already given them an SOA setting out their relevant circumstances, and
their relevant circumstances for the further advice, and the basis on which you give the advice, are not significantly different (see regulation 7.7.10AE of the Corporations Regulations 2001).
In this instance, you do still need to give them information about potential conflicts of interest and keep a record of the advice. For more information on the circumstances where an SOA is not required, and other conditions that should be complied with instead, see Section C of RG 175.
Record-keeping obligations that apply to personal advice
This includes records of all information relied on, and actions taken, that show compliance by you or your representatives with the best interests duty and related obligations. Some examples of these records are SOAs, file notes, correspondence and audio recordings.
Records that show the compliance systems used in connection with giving personal advice, including training materials, records of who is attending the training and call scripts, should also be retained.
For more information on preparing, providing and keeping records relating to personal advice, see Section D of RG 175.
General advice warning
Whenever you provide ‘general advice’ to a retail client, you should warn your client that:
the advice has been prepared without taking into account their objectives, financial situation or needs
they should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation or needs, before following the advice, and
if the advice relates to the acquisition or possible acquisition of a particular financial product (such as a pension through an existing superannuation product), they should obtain a copy of, and consider, the Product Disclosure Statement for that product before making any decision (see section 949A).
If you are providing the general advice verbally, you still need to provide a warning. The verbal warning can be simpler as long as it warns that the advice is general and may not be appropriate for the client. For example, you could say: ‘You will need to decide whether this advice meets your needs because I haven’t considered this.’
For more information on the general advice warning, see Section B of RG 175.
Conflicted remuneration
If you provide financial product advice to a retail client (whether personal or general advice), you must consider whether you are receiving or will receive conflicted remuneration. Conflicted remuneration (unless an exemption applies) is any benefit given to you or your representatives that, because of the nature of the benefit or the circumstances in which it is given, could reasonably be expected to influence:
the choice of financial product recommended to your clients, or
the financial product advice given to your clients (see section 963A).
There is a presumption that benefits that are available or calculated based on the value or number of products recommended to or acquired by clients (i.e. ‘volume-based benefits’) are conflicted remuneration: see section 963L. Benefits given to you by a retail client in relation to a financial product or financial service you provide to the client are not conflicted remuneration: see section 963A(1)(b).
There are prohibitions on:
you or your representatives accepting conflicted remuneration (see sections 963E, 963G and 963H)
product issuers and sellers giving conflicted remuneration (see section 963K)
employers giving their employees who provide financial services conflicted remuneration for work they carry out as an employee (see section 963J).
A limited AFS licensee has an arrangement with a property developer. Each time one of the licensee’s SMSF clients purchases a property from the developer, the developer pays a commission to the licensee. The licensee regularly provides advice to clients recommending that they establish an SMSF in order to invest in property using their superannuation money.
Commentary
The commissions paid to the limited AFS licensee by the property developer are highly likely to be conflicted remuneration. This is because, in the circumstances in which the commissions are paid, they could reasonably be expected to influence the licensee to recommend that their clients establish an SMSF and use it to invest in property when they might not otherwise do so. As a result, the licensee would be prohibited from accepting those commissions.
For more information on the rules relating to conflicted remuneration (including the exceptions), see Regulatory Guide 246 Conflicted and other banned remuneration (RG 246).
Ongoing fee arrangements
As a fee recipient, if you give personal advice to a retail client and you and the client have entered into an arrangement under which they pay you a fee over a period of more than 12 months, then (subject to some limited exceptions) you have an ‘ongoing fee arrangement’ with that client: see section 962A. This is illustrated in Table 1.
Table 1: Ongoing fee arrangements
Not likely to be an ongoing fee arrangement
Likely to be an ongoing fee arrangement
You charge your client:
a one-off fee to recommend that they establish an SMSF, and
later, another one-off fee to arrange for them to become a member of the SMSF.
You charge your client:
a continuing fee that is calculated as a percentage of their SMSF balance, and
the fee will be paid over a period of longer than 12 months.
There are obligations that apply when an ongoing fee arrangement exists:
You need to obtain client written consent to enter an ongoing fee arrangement and for the fees to be charged under that arrangement: see section 962G(1). If you propose to deduct, arrange to deduct or accept the deduction of ongoing fees under the arrangement from a third-party account, you also need to obtain the client’s written consent unless the account is a bank account or an account linked to a credit card: see sections 962R and 962S.
The written consents must be signed by the client dated and, if the account is held jointly, each account holder must sign a separate written consent to meet the requirements: see section 962S(4).
You can seek written consent electronically (e.g. by email or on a webpage). If you are required to give more than one notice or form to the same person in meeting your ongoing fee arrangement responsibilities, you can combine the information into a single notice or form. In that case, all requirements for giving each form or notice must be met, and the form or notice must clearly state the purposes for which it is being given: see section 962YA.
You must also keep client consent to enter an ongoing fee arrangement or a copy of it: see section 962G(1). Where applicable, you must give a copy of a client’s written consent for you to deduct, arrange to deduct or accept ongoing fees to the relevant account provider(s): see section 962S(3)(c). You should consider your privacy obligations when passing on confidential information in the written consent to different account providers and seek independent legal advice if necessary.
You cannot charge fees under an ongoing fee arrangement from a MySuper product (see section 29VA(9A) of the SIS Act).
Before obtaining a client’s consent to enter an ongoing fee arrangement, or before obtaining the client’s written consent to deduct, arrange to deduct or accept ongoing fees, you need to disclose matters to them: see sections 962G and 962T. The matters to be disclosed are:
the name and contact details of the ‘fee recipient’ (defined in section 962C)
an explanation of why you are seeking the client’s consent
the maximum upcoming period before the consent ceases to have effect
information about the services that the client will be entitled to receive under the arrangement in the upcoming year
information about either:
the amount of ongoing fees that the client will pay during the upcoming year, or
if you cannot determine the amount, a reasonable estimate of the ongoing fees and the method you used to calculate the estimate
information about the frequency of ongoing fee deductions that the client will pay during the upcoming year
a statement that the client can terminate the arrangement at any time
a statement that the arrangement will terminate, and no further advice will be provided or fee charged, if consent is not given
a date indicating when the arrangement will terminate if consent is not given by the client (see section 962G(2)), and
any other matters prescribed by regulations (noting no regulations have currently been made for this purpose) (see section 962G(2)(j)).
If a client’s written consent is for you to deduct, arrange to deduct or accept ongoing fees, you must include the following additional information in the client consent:
the name of the account holder and the account number, and
the amount(s) to be deducted or, if this cannot be determined at the time of the consent, a reasonable estimate of the amount(s) and the method used to work out the estimate (see section 962T).
For more information about ongoing fee arrangements, see Information Sheet 286 FAQs: Ongoing fee arrangements and consents (INFO 286).
A client must renew their written consent to an ongoing fee arrangement each year, which requires the same disclosures and written consent obligation that applies upon entry into an ongoing fee arrangement.
The date by which the client must renew their consent (reference day) is the earlier of the date specified in the written consent for this purpose, and the anniversary of the previous specified date or the anniversary of the date on which the ongoing fee arrangement was entered into if it is the first renewal: see section 962H(2).
If the client does not renew their consent in the period that starts 60 days before the reference day and ends 150 days after that day, their consent will cease: see section 962H(1).
An ongoing fee arrangement will also terminate if:
the client notifies you in writing at any other time (see section 962J), or
you fail to comply with your obligations in Division 3 of Part 7.7A; this includes:
not obtaining the client’s consent before deducting, arranging to deduct or accepting deductions of ongoing fees, and
failing to satisfy the content requirements of a written consent (sections 962F and 962WA).
Where an ongoing fee arrangement terminates, no further fees can be charged under the arrangement and there is no obligation to continue to provide services to the client.
If you receive notification from a client varying or withdrawing their written consent for you to deduct, arrange to deduct or accept ongoing fees, within 10 business days you must:
give written confirmation to the client that the notice was received, and
if a copy of the consent was provided to a third-party account provider – give the account provider a copy of the notice (see section 962U(2)).
The client’s written consent will cease to have effect at the end of 150 days after the anniversary of the day the ongoing fee arrangement was entered into, unless the client:
terminates the arrangement earlier, or
renews their consent in relation to the arrangement (see section 962V(1)).
If the written consent ceases, you must notify your client’s account provider within 10 business days of it ceasing: see section 962V(2).
Limited AFS licensees: Quick guide– download the quick guide, which highlights some of the main obligations that apply when giving advice to retail clients under a limited AFS licence
RG 90Example Statement of Advice: Scaled advice for a new client
RG 175AFS licensing: Financial product advisers—Conduct and disclosure
INFO 182Super switching advice: Complying with your obligations
INFO 227What can limited AFS licensees do?, which explains the scope of the activities you can carry out under your limited AFS licence
INFO 229Limited AFS licensees: Complying with your licensing obligations, which explains what you must do as a limited AFS licensee on an ongoing basis
INFO 274Tips for giving self-managed superannuation fund advice
INFO 286 FAQs: Ongoing fee arrangements and consents
INFO 291FAQs: FSGs and website disclosure information
REP 515Financial advice: Review of how large institutions oversee their advisers
Please note that this information sheet is a summary giving you basic information about a particular topic. It does not cover the whole of the relevant law regarding that topic, and it is not a substitute for professional advice. We encourage you to seek your own professional advice to find out how the applicable laws apply to you, as it is your responsibility to determine your obligations.
You should also note that because this information sheet avoids legal language wherever possible, it might include some generalisations about the application of the law. Some provisions of the law referred to have exceptions or important qualifications. In most cases, your particular circumstances must be taken into account when determining how the law applies to you.
Information sheets provide concise guidance on a specific process or compliance issue or an overview of detailed guidance.
This information sheet was updated in November 2024.
