Tips for giving limited advice

This information sheet (INFO 267) is for Australian financial services (AFS) licensees and their representatives who provide personal advice to retail clients.

It provides tips to help advice providers comply with their legal obligations – including the best interests duty and related obligations in Division 2 of Part 7.7A of the Corporations Act 2001 (Corporations Act), and the FASEA Financial Planners and Advisers Code of Ethics (Code of Ethics) – when giving limited advice.

Where this information sheet refers to a standard in the Code of Ethics, this indicates that FASEA considers the related guidance or step to be essential for compliance with the standard.

This information sheet also summarises relevant guidance from Regulatory Guide 175 Licensing: Financial product advisers—Conduct and disclosure (RG 175) and Regulatory Guide 244 Giving information, general advice and scaled advice (RG 244) on what advice providers can do to meet their legal obligations when giving limited advice.

This information sheet has two sections. First, the overview of giving limited advice covers:

Second, ASIC’s tips for limited advice cover:

For more detailed guidance on these issues, see Where can I get more information? at the end of this information sheet.

Overview of giving limited advice

What is limited advice?

Limited advice is personal advice that does not cover all possible topics relevant to the client. Limited advice is also known as scaled, single-issue, narrow-scope, modular, piece-by-piece or episodic advice. Intra-fund advice is an example of limited advice.

All personal advice can be scaled – advice is either limited in scope or more comprehensive in scope along a continuous spectrum.

When considering giving limited advice, you should remember that:

  • you can limit the scope of all types of advice, including advice about complex issues
  • limited advice can include advice on a single topic or advice on multiple topics
  • you can adjust the level of your inquiries to reflect the nature of the advice sought
  • you should not reduce the scope of advice to exclude critical issues that are relevant to the subject matter
  • you must explain what advice you are providing and what advice you are not providing
  • limited advice is not lesser quality advice
  • while processes can be used to help you provide limited advice, you need to use your expertise, skills and professional judgement as an advice provider to deliver good-quality limited advice and comply with your obligations.

Your best interests duty and related obligations when giving limited advice

The same rules apply to all personal advice, regardless of whether the advice is limited or comprehensive in scope.

When giving personal advice, you must:

  • act in the best interests of the client (section 961B)
  • provide the client with appropriate advice (section 961G)
  • warn the client if the advice is based on incomplete or inaccurate information (section 961H), and
  • prioritise the interests of the client (section 961J).

We refer to these obligations collectively as 'the best interests duty and related obligations'.

You must also comply with the Code of Ethics: section 921E. For more information, see FASEA’s Financial Planners and Advisers Code of Ethics 2019 Guidance on FASEA's website.

Note 1: In this information sheet, all section references are to the Corporations Act.

Note 2: For further guidance on the best interests duty and related obligations, see Section E of RG 175 and Sections D and E of RG 244 at 244.58–RG 244.93.

Safe harbour

Section 961B(2) sets out a 'safe harbour' for complying with the best interests duty in section 961B(1). If you wish to rely on the safe harbour, you must show you have satisfied all of the elements of the safe harbour discussed in RG 175 at 175.277–RG 175.371.

ASIC's tips for giving limited advice relate to some of the steps of the safe harbour in section 961B(2). Our tips also address record keeping. Good record keeping is important to demonstrate that you have complied with your obligations: see RG 175.432.

ASIC's tips

Use your professional judgement when identifying the subject matter and scope of the advice

To satisfy the safe harbour for complying with the best interests duty, you must identify the subject matter of the advice sought by the client (whether explicitly or implicitly): section 961B(2)(b)(i). This is relevant to determining the scope of the advice.

You will need to use your professional judgement when identifying the subject matter and scope of advice: see RG 175 at RG 175.289–RG 175.294.

Identifying the client's reasons for seeking advice by asking open-ended questions

The subject matter of the advice sought by the client may be explicit from the client's request, or it may be implicit (for example, when a client requests advice in response to a life event): see Example 11 in RG 175.

You can refine your understanding of the subject matter as you discover more information about the client: see Example 14 in RG 175 and Section D of RG 244 at RG 244.65–RG 244.67.

When making inquiries of the client, you should ask open-ended questions to help you identify the subject matter of the advice sought by the client: for example, 'Why did you come to see me today?'

Putting your client first by declining to provide advice and referring your client elsewhere if you cannot act in the client's best interests when scoping the advice

Either you or your client can suggest limiting or revising the subject matter of the advice. However, you must use your judgement when deciding on the scope of the advice. You must determine the scope of the advice in a way that is consistent with the client's relevant circumstances and the subject matter of the advice they are seeking.

After discussing the client's reasons for seeking advice, you may identify that certain topics cannot be reasonably scoped out. If the client seeks to limit the scope of advice, and you are unable to act in their best interests, or you lack the relevant expertise, you should decline to provide the advice.

Note: For more detail see RG 175 at RG 175.267, RG 175.306–RG 175.308 and RG 175.330, and RG 244 at RG 244.66–RG 244.68.

You should also not limit the scope of advice to exclude a critical issue that is relevant to the subject matter of the advice sought by the client because it is not a core element of your advice model. Providing personal advice requires a tailored approach for each client.

Where your licensee authorisations or advice model do not allow you to provide the scope of advice required, it may be appropriate to refer your client to an adviser who does have the relevant authorisations, expertise and capacity, to address the relevant advice areas: see RG 175 at RG 175.331. If you do refer a client, keep in mind Standard 7 of the Code of Ethics regarding potential benefits that derive from a third party.

For example, if you specialise in superannuation or insurance, in certain client situations you may need to consider:

  • the client's existing superannuation and insurance policies
  • retirement planning for a client if it is integral to the client's overall superannuation and insurance strategy
  • cash flow management for a client when providing insurance advice.

In these scenarios, your advice model should not dictate what is, or is not, included in the scope of the advice.

Addressing advice topics that fall outside the scope of the advice

When identifying the scope of the advice, you may also need to address advice topics that fall outside the scope of the advice.

You should ensure that your records clearly demonstrate the reasons why certain topics relevant to the client are not in scope and why it is still possible to act in the best interests of the client and provide appropriate advice in doing so. This requires you to use your professional judgement to consider your client's relevant circumstances and explain the implications of your advice recommendations. This is because your client(s) may have competing objectives and this is one reason they are seeking advice.

You and your client may agree to scope a topic out of the advice while recognising that the client will need advice on the topic at another time. You should consider how you will address that advice need now or in future, and keep records in your client's file or Statement of Advice (SOA). This helps demonstrate that you are acting in the best interests of your client.

Table 1 provides examples of how you can address out-of-scope advice topics or a client's other advice needs now or in the future.

Table 1: Examples of addressing out-of-scope advice topics or other advice needs

If you intend to…

Then you should…

address a client's out-of-scope advice topic or advice need at a future date

Note: See Example Statement of Advice (SOA): Limited advice

  • consider scheduling the next meeting now
  • follow up within a specified period to determine an appropriate time to address the topic or need, and
  • explain to the client the impact of not addressing the topic or need and confirm that the client understands the implications.

refer a client's advice need to another adviser

Note: See Example Record of Advice (ROA): Stockbroker

  • consider whether the client needs to obtain that advice before you can proceed with providing your advice
  • record details of who the adviser(s) are and the areas in which they will be assisting, and
  • ask your client to provide an update of any changes to their situation which may impact your current advice.

refer the client to another non-advice specialist, such as a solicitor for estate planning, or a mortgage broker for lending needs

Note: See Example Record of Advice (ROA): Life insurance advice – Retain existing products and increase insurance

  • consider whether the client needs to obtain that advice before you can proceed with providing your advice
  • record details, where possible, of who the specialists are and the areas in which they will be assisting, and
  • communicate with your client the importance of them advising you of any changes to their situation which may impact your current advice.

Note: See RG 175 at RG 175.289–RG 175.308 for information about the subject matter of the advice sought by the client.

Communicate the service you are providing

When giving limited advice, you need to clearly communicate the advice you are providing and the advice you are not providing, and the implications of this.

For example, when giving limited advice, it should be very clear in your SOA (if you are required to give one) what advice you have provided and what advice you have not provided, the implications of this, and why you have taken this approach.

We consider that limited advice will be unlikely to meet the best interests duty and related obligations if the client does not understand any of the significant limitations or qualifications that apply to it: see Table 1 in RG 244. Clear communication can help you to be satisfied that the client understands your advice, and the benefits, costs and risks of the financial products you recommend: see Standard 5 of the Code of Ethics.

Importantly, you don't need to provide advice on every advice topic that may be relevant to the client, but you do need to consider whether topics are relevant and communicate the outcome of your consideration to the client, including the implications of not providing advice on the relevant topic: see RG 244 at RG 244.90 and Examples 2 and 3 in RG 244.

Note: See RG 244.87–RG 244.93 about communicating the scope of personal advice.

Take active steps to identify and inquire about your client's relevant circumstances and obtain complete information

Another element of the safe harbour requires you to identify the client's relevant circumstances: section 961B(2)(b)(ii). We consider that taking active steps to identify and inquire about your client's relevant circumstances will help you satisfy this step of the safe harbour.

Making inquiries

You can adjust the level of your inquiries to reflect the nature of the advice sought by the client: see RG 244 at RG 244.71–RG 244.73.

You should ask the client all the questions necessary to identify their relevant circumstances considering the advice you are likely to provide.

These questions may relate to topics that are outside the identified scope of advice: see RG 175 at RG 175.312–RG 175.315 and Standard 6 of the Code of Ethics.

For example:

  • if cash flow management is scoped out of the advice, you may still need to inquire about the client's cash flow position to ensure they can afford to implement your recommendations – and, therefore, that your recommendations are appropriate for them
  • if a client says that their partner does not wish to obtain advice, you may still need to obtain relevant information about the partner to consider how the partner's financial circumstances may impact your advice to the client: see Example Statement of Advice (SOA): Limited advice (PDF 759 KB).

Revising the subject matter of advice

If you have identified the subject matter of the advice and intend to provide advice to a client on a single issue, you may need to ask the client questions about other aspects of their relevant circumstances to satisfy yourself that you can act in your client's best interests: see RG 175 at RG 175.316–RG 175.318.

Asking the client a broad range of questions does not mean you have to give the client comprehensive advice.

For example, when providing advice about superannuation contributions, you should inquire about the client's goals and objectives that are relevant to that particular aspect of superannuation advice. Making these inquiries does not necessarily mean you will need to provide retirement advice now: see Example 6 in RG 244.

When providing advice about personal insurances, you should inquire about and consider the client's existing superannuation and insurance policies. Where advice is provided to hold insurance(s) through superannuation, you may need to consider whether to also provide superannuation advice: see Example Statement of Advice (SOA): Limited advice (PDF 759 KB) and Standard 6 of the Code of Ethics.

Note: See RG 244 at RG 244.69–RG 244.73 for information about adjusting the level of your inquiries to reflect the nature of the advice sought.

Making inquiries to obtain complete and accurate information

The safe harbour also requires you to make reasonable inquiries to obtain complete and accurate information: section 961B(2)(c). Your fact-finding process (i.e. inquiries about the client's relevant circumstances) can be either limited or expanded, depending on the subject matter of the advice sought and the client's relevant circumstances.

You should consider whether the information initially provided to you by the client allows you to sufficiently identify the client's relevant circumstances. Sometimes, it will not be sufficient and you will need to make further inquiries: see RG 175 at RG 175.312–RG 175.315.

You may need to make further inquiries to obtain information from:

  • the client, through your fact-finding process
  • third parties, such as providers of research reports on financial products
  • product providers, where additional information has been identified through your advice process (e.g. specific product information obtained with the client's permission).

For example, if a client says they don't think they have any insurance within their existing superannuation accounts, you need to make your own inquiries with the client's superannuation provider(s) to ensure relevant information is not overlooked. This includes reviewing the client's latest superannuation statements or obtaining authorities to inquire about the client's accounts: see Standard 6 of the Code of Ethics.

Use processes and systems

You are more likely to be able to demonstrate that you have met the best interests duty and related obligations when giving limited advice if you have adequate processes and systems in place.

Note: See RG 244 at RG 244.74–RG 244.80 for information about having processes in place.

Using processes and systems for scoping advice

When scoping the advice, you may use processes and systems to assist (e.g. fact finds and checklists). However, if your processes and systems have pre-determined questions that lead the client's instructions for advice, you risk fitting the client into a box, rather than identifying and recording their real motivation for seeking advice: see RG 244 at RG 244.77.

For example, if your advice is based on a client requesting a specific level of insurance cover, it is important that you ask how the client decided on the level sought. You could ask them questions such as:

  • What are you seeking to cover with this level of insurance?
  • Do you understand how the different types of insurance interact?
  • Are you aware of when, and in what circumstances, insurance will be paid?

You should use the client's responses to these inquiries to form the basis of your recommendations.

Designing advice processes to ensure advice strategies come first

Giving sound strategic advice is a key component of good quality advice. Product recommendations should follow, rather than direct, the suggested strategies.

For example, if a client seeks advice about their current insurance cover, it may be relevant to consider the client's cash flow position before you consider a product recommendation. This is because a client's cash flow may impact how potential insurance premiums should be paid for. It may also be relevant to identify whether the recommended product should be held personally by the client or within their superannuation.

It is important to consider these strategic areas first, to inform your decision about which product may be suitable for the client.

Note: For further examples, see Examples 2 and 3 in RG 244.

Keeping records

You should keep good records of your actions and the steps you have taken in relation to providing advice. This includes inquiries you have made about the client's relevant circumstances and, if relevant, your consideration and investigation of the financial product you are advising on.

Note: See RG 175 at RG 175.427–RG 175.442 for information about record-keeping obligations that apply to personal advice, and Standard 8 of the Code of Ethics

Your records should include:

  • the information you have relied on and the action you have taken that proves you have acted in the best interests of the client in relation to the advice given, including the scope of the advice
  • if you are relying on the safe harbour to prove that you have met the best interests duty – the information you have relied on and the action you have taken that satisfies the safe harbour steps in section 961B(2)
  • your advice given, including the reasons why it would be reasonable to conclude that the advice is appropriate for the client (in accordance with section 961G), and
  • where you know, or reasonably ought to know, that there is a conflict between the interests of the client and the interests of the advice provider, licensee, authorised representative or their associates – the information you have relied on and the action you have taken to indicate that you have given priority to the client's interests when giving the advice: see RG 175 at RG 175.435. See also Standard 3 of the Code of Ethics, which intends that advisers must not advise, refer or act in any other manner where they have a conflict of interest or duty that is contrary to the client’s best interests.

Our tips for good record keeping, demonstrating that you have complied with your obligations, are set out in Table 2.

Table 2: Tips for good record keeping

Subjects

Tips

What the client is seeking

You should clearly demonstrate in your records the client's reasons or objectives for seeking advice. It's good practice to capture this in the client's own words in the client file and in the SOA.

For example, if a client says, 'I want to sort out my super', and then asks you questions about how much superannuation they might need to retire, options for retirement income streams and possible timeframes, you should record details of the client's questions and your answers, and not just record 'the client is seeking advice on superannuation'.

How you have scoped the advice

You should keep records about what advice the client was initially seeking (explicitly and implicitly), and how you decided which advice topics would be included or excluded from the scope of advice.

For example, if you exclude advice topics from the scope of advice, your records should demonstrate why the excluded advice topics will not impact the topics of advice you will be addressing and how you can still act in the client's best interests.

Your records should also demonstrate that the client understood the implications of limiting the scope of advice and was prepared to proceed with a narrower scope.

What you have discussed with the client

If the client has requested specific levels of insurance, your records should capture your discussions, including further inquiries you have made of the client to understand how they decided on those levels. You should not simply record 'The client wanted specified levels of cover', with no additional information.

Following your further inquiries, your records should demonstrate how you used your professional judgement to give your client recommendations on the appropriate insurance coverage (both type and amount).

Why the client is requesting a limited scope of advice

If the client asks you to limit the scope of advice, you should record this carefully in the client file, together with the client's reasons for the request and the implications of limiting the scope of advice. These should also be detailed in the SOA.

What the client's relevant circumstances are

You should keep records of your client's relevant circumstances so your client file accurately reflects what you have relied on to support your scoping considerations.

Why the scope of advice is suitable

Your SOA should be very clear about what advice you have provided and what advice you have not provided, the implications of this, and why you have taken this approach.

Why the scope of advice is suitable for the client and consistent with their relevant circumstances should be captured in your client file.

What not to include in the SOA

You should not include in the SOA generic text or detailed explanations about other advice topics that are not relevant to the client. This is one way you can keep the SOA concise and easy to read.

For example, if you choose to provide factual information to the client about product research, estate planning or Centrelink but you haven’t explicitly considered or referred to this information in the SOA provided to the client, it may be more appropriate to provide that information separately.

Note: See RG 175 at RG 175.213–RG 175.217 for information about clear, concise and effective presentation of SOAs.

What format your records can take

You can choose to create and maintain records in different formats including file notes, working papers, fact-finding documents or audio files: see RG 175 at RG 175.431.

Audio files can be a good way of accurately capturing client discussions.

How the client file and SOA work together

Together, your client file and SOA should demonstrate the steps you have taken to determine the subject matter of the advice and how it is appropriate and in the client's best interests.

Where can I get more information?

For more information, see:

You can also ask a question online or call ASIC on 1300 300 630.

Important notice

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. Omission of any matter on this information sheet will not relieve a company or its officers from any penalty incurred by failing to comply with the statutory obligations of the Corporations Act

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.

This is Information Sheet 267 (INFO 267), issued in December 2021.

 

What's new

More financial service releases

ASIC industry funding

Last updated: 01/12/2021 12:28