What must a Statement of Advice include?

What the law says

The obligation to give a Statement of Advice (s 946A) applies to most personal advice to retail clients (RG 175.79), unless an exception such as the small investment rule in s 946AA or one of the situations in s 946B applies. What the document must contain depends on who gives the advice: s 947B applies when the providing entity is a licensee, and s 947C when it is an authorised representative. The two lists match, except that an authorised representative must also identify the licensee.

The regulations add to the list. An authorised representative's SoA must include the licensee's licence number (reg 7.7.11A), and both kinds of SoA must include any remuneration or benefit paid to someone for referring the client (reg 7.7.11(1) and reg 7.7.12(1)).

How much detail is enough has a single test. Under s 947B(3) and s 947C(3) it is the level of detail "such as a person would reasonably require for the purpose of deciding whether to act on the advice as a retail client". Everything in the document must also be "worded and presented in a clear, concise and effective manner" (s 947B(6) and s 947C(6)).

Two further rules shape the document. If the advice recommends replacing one product with another, the SoA must also include the information s 947D requires (s 947B(5)(a) and s 947C(5)(a)). And an SoA cannot be combined in a single document with a Financial Services Guide or a Product Disclosure Statement (s 947E).

ASIC's list in RG 175.96 restates these requirements, together with the title "Statement of Advice" on the cover or at or near the front (s 947A) and, for a licensee, its licence number (RG 175.96(b)). In a note to that paragraph ASIC says the SoA should be dated and should normally set out how long the recommended course of action remains current.

Some content can sit in another document the client has already been given, or is given with the SoA, if the SoA identifies it and says a copy is available free on request (RG 175.103). That never applies to the s 947D switching information or the s 961H warning, which must be in the SoA itself.

What it looks like in an SoA

An example of how the required items can be laid out. The headings and wording are illustrative, not a prescribed form, and the brackets mark what each SoA fills in.

• Statement of Advice, with the date, on the cover.
• Who is giving this advice: "This advice is given by [adviser name], [phone], [email], an authorised representative of [licensee name], [licensee contact details], Australian Financial Services Licence [number]."
• The advice: each recommendation, stated so the client could act on it.
• Why we recommend it: the client's relevant circumstances, the scope of the advice, and the reasoning that links the two.
• What we and others are paid: every fee, commission and benefit in one place, each as an amount in dollars, who pays it and who receives it, including any payment for referring the client.
• Our interests and associations: any ownership or other link with the issuers of the products recommended.
• If you are replacing a product: the dollar cost of leaving it, the cost of the new one, the benefits the client may lose and any other significant consequences.
• If we did not have complete information: the warning, and what was incomplete.

Common mistakes

• Fees shown only as percentages. An ongoing fee written as a percentage of the balance, with no amount in dollars, misses s 947B(2)(h) or s 947C(2)(i). ASIC says it is not enough to state that a commission may be received and that the client can ask for details (RG 175.121).
• No licensee details for an authorised representative. The licensee's name, contact details and licence number, and the statement of the authorised representative relationship, are required by s 947C(2)(d) and reg 7.7.11A.
• A basis that only repeats the advice. ASIC expects the SoA to set out the reasoning that led to the advice in language that is easy to understand, including the client's relevant circumstances, the scope, and why the recommendations were considered appropriate against the alternatives (RG 175.105(c)).
• Switching information left in an appendix or another document. The s 947D information cannot be incorporated by reference (RG 175.103), and ASIC expects key information in the body of the document rather than an appendix (RG 175.126(a)).
• The SoA bundled with the PDS. Section 947E does not allow the two in one document.
• Generic material that buries the advice. Research or educational content the law does not require should not be included if it stops the SoA being clear, concise and effective (RG 175.129(b)).