ASIC regulates financial advice. So it’s useful to know what ASIC thinks constitutes good quality financial advice.

In Report 279: Shadow shopping study of retirement adviceASIC says that “good quality advice” has “some or all of the following characteristics”:

  • The advice has a reasonable basis (according to section 945A of the Corporations Act 2001, which has since been replaced by the appropriateness test of section 961G)
  • the “advice demonstrates that the adviser has improved the client‘s financial situation”
  • “The adviser has clearly defined the scope of the advice and obtained detailed information about the client‘s relevant objectives, financial situation and needs.”
  • “The adviser assists the client to set and prioritise specific and measurable goals and objectives.”
  • “The strategy meets the client‘s relevant personal circumstances well, is specific, measurable and achievable”
  • The strategy “does not expose the client to more risk than necessary”
  • Where relevant, the advice “presents options”.
  • “The adviser considers the wider impact of the advice [such as tax or social security consequences] (where relevant)”
  • “There is evidence of good communication with the client. This includes SOAs that are logically structured and easy to understand and verbal interactions that aim to ensure that the advice and recommendations are understood.”
  • “The products meet the strategy.”

In Regulatory Guide 175: Licensing: Financial product advisers – Conduct and disclosure, ASIC repeats many of these criteria, stating that it considers “any process of giving good quality financial advice has some or all of the following features:

  1. a clearly defined scope that is appropriate to the subject matter of advice sought by the client and the client’s relevant circumstances; 
  2. an investigation of the client’s relevant circumstances;
  3. assistance given by the advice provider to the client, if required, to set prioritised, specific and measurable goals and objectives; 
  4. where relevant, consideration of potential strategies and options that are available to the client to meet their objectives and needs;
  5. where relevant, consideration of all aspects of the impact of the advice—for example, tax or social security consequences; 
  6. good communication with the client. This includes: 
    1. providing an SOA that is logically structured and easy to understand, if one is required; and 
    2. if appropriate, depending on how the advice is provided, verbal interactions that aim to ensure that the advice and recommendations are understood; and 
  7. where relevant, strategic and product recommendations that are appropriate for the client’s relevant circumstances.”

Sonnie Bailey

Sonnie is an Authorised Financial Adviser (AFA) and former lawyer with experience in the financial services and trustee industries. Sonnie operates Fairhaven Wealth (www.fairhavenwealth.co.nz).

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