Regulatory Guide RG 175 Licensing: Financial product ...

REGULATORY GUIDE 175

Licensing: Financial product advisers--Conduct and disclosure

November 2017

About this guide

This guide is for persons who provide financial product advice to retail clients, and their professional advisers (such as lawyers). It considers how certain conduct and disclosure obligations in Pt 7.7 and Div 2 of Pt 7.7A of the Corporations Act 2001 apply to the provision of financial product advice.

REGULATORY GUIDE 175: Licensing: Financial product advisers--Conduct and disclosure

About ASIC regulatory documents

In administering legislation ASIC issues the following types of regulatory documents. Consultation papers: seek feedback from stakeholders on matters ASIC is considering, such as proposed relief or proposed regulatory guidance. Regulatory guides: give guidance to regulated entities by: explaining when and how ASIC will exercise specific powers under

legislation (primarily the Corporations Act) explaining how ASIC interprets the law describing the principles underlying ASIC's approach giving practical guidance (e.g. describing the steps of a process such

as applying for a licence or giving practical examples of how regulated entities may decide to meet their obligations). Information sheets: provide concise guidance on a specific process or compliance issue or an overview of detailed guidance. Reports: describe ASIC compliance or relief activity or the results of a research project.

Document history

This guide was issued in November 2017 and is based on legislation and regulations as at the date of issue.

Previous versions: Superseded Regulatory Guide 175, issued May 2009, reissued April

2011, December 2012, October 2013 and March 2017 Superseded Policy Statement 175, issued June 2003, reissued

September 2003, May 2005 and May 2007, and rebadged as a regulatory guide 5 July 2007

Disclaimer

This guide does not constitute legal advice. We encourage you to seek your own professional advice to find out how the Corporations Act and other applicable laws apply to you, as it is your responsibility to determine your obligations.

Examples in this guide are purely for illustration; they are not exhaustive and are not intended to impose or imply particular rules or requirements.

? Australian Securities and Investments Commission November 2017

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REGULATORY GUIDE 175: Licensing: Financial product advisers--Conduct and disclosure

Contents

A Overview .................................................................................................4 Disclosure obligations under Pt 7.7 .........................................................5 Conduct obligations under Div 2 of Pt 7.7A.............................................8

B Providing financial product advice ....................................................10 What is `financial product advice'? ........................................................10 What obligations apply to the provision of financial product advice? ....11 Who is the `providing entity'? .................................................................12 Who is the `advice provider'?.................................................................12 Who is a `retail client'? ...........................................................................13 What is the difference between personal advice and general advice?....14 The general advice warning...................................................................17 Other obligations that apply to the provision of financial product advice....18 Failure to comply with obligations..........................................................26

C Preparing and providing a Financial Services Guide ......................27 The obligation to prepare and provide an FSG .....................................27 When must an FSG be provided? .........................................................28 What must be included in an FSG? .......................................................30 How must an FSG be provided?............................................................35 How the FSG obligations apply to secondary services .........................36 When can an FSG be combined with a PDS?.......................................39 Record-keeping obligations that apply to FSGs ....................................40 Other key aspects of the FSG regime ...................................................41

D Preparing and providing a Statement of Advice ..............................43 The obligation to prepare and provide an SOA .....................................43 SOAs and the best interests duty and related obligations.....................44 When must an SOA be provided? .........................................................44 Obligations that apply to further advice .................................................47 What must be included in an SOA?.......................................................48 Information about the advice and the basis for the advice ....................51 Information about remuneration, commission and other benefits .........52 Clear, concise and effective presentation..............................................56 Record-keeping obligations that apply to SOAs ....................................57 Other requirements that apply to SOAs.................................................58

E Acting in the client's best interests and related obligations ..........60 Overview ................................................................................................60 Acting in the best interests of the client .................................................65 Safe harbour for complying with the best interests duty........................72 Providing appropriate personal advice ..................................................90 Giving a warning for advice based on incomplete or inaccurate information .............................................................................................96 Prioritising the client's interests .............................................................97 Giving scaled advice ............................................................................101 Record-keeping obligations that apply to personal advice ..................102

Appendix 1: Examples of the difference between personal advice and general advice ............................................................................106

Appendix 2: Examples of secondary services and how to avoid providing them ...................................................................................108

Appendix 3: Examples of financial advice reviews ...............................110

Key terms ...................................................................................................113

Related information...................................................................................119

? Australian Securities and Investments Commission November 2017

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REGULATORY GUIDE 175: Licensing: Financial product advisers--Conduct and disclosure

A Overview

Key points

Under Pt 7.7 of the Corporations Act, providing entities that provide financial product advice to retail clients must:

? prepare and provide a Financial Services Guide (FSG); ? give a general advice warning when giving general advice; and ? prepare and provide a Statement of Advice (SOA) when giving

personal advice.

Under Div 2 of Pt 7.7A, advice providers providing personal advice to retail clients must comply with the `best interests duty' and related obligations, which were introduced as part of the Government's Future of Financial Advice (FOFA) reform package to improve the quality of financial advice received by retail clients.

RG 175.1

Part 7.7 and Div 2 of Pt 7.7A of the Corporations Act 2001 (Corporations Act) require persons who provide financial product advice to retail clients to comply with certain conduct and disclosure obligations. These obligations are designed to ensure that retail clients receive good quality advice about financial products and are able to make informed decisions about that advice. The obligations vary depending on whether the advice is personal advice or general advice. Figure 1 provides an overview of these obligations.

Figure 1: Overview of conduct and disclosure obligations

Guidance for all persons who provide financial product advice to retail clients

Pt 7.7

Applies to `providing entities': see RG 175.30

Div 2 of Pt 7.7A

Applies to `advice providers': see RG 175.33?RG 175.34

What are the obligations?

General advice

Provide a general advice warning: s949A

All advice

Prepare and provide an FSG: s941?3

Personal advice

Prepare and provide an SOA: s946?7

Personal advice

(a) act in client's best interests: s961B (b) provide appropriate advice: s961G (c) warn if advice incomplete or inaccurate: s961H (d) prioritise client's interests: s961J

Note: See Table 3 for a text version (accessible) of the information contained in this diagram.

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REGULATORY GUIDE 175: Licensing: Financial product advisers--Conduct and disclosure

RG 175.2

This regulatory guide tells you how we will administer the law. Providing entities and advice providers must determine and comply with their legal obligations, including those arising under Pt 7.7 and Div 2 of Pt 7.7A.

Note 1: The obligations in Pt 7.7 and Div 2 of Pt 7.7A only apply where financial product advice is provided to retail clients.

Note 2: In this guide, references to parts (Pts), divisions (Divs) and sections (s) are to the Corporations Act, unless otherwise specified.

Disclosure obligations under Pt 7.7

RG 175.3

Under Pt 7.7, providing entities must: (a) where general advice is provided, ensure that a general advice warning

is given to the client; (b) prepare and provide a Financial Services Guide (FSG) for general and

personal advice; and

Note: This obligation applies to all providing entities that provide financial services to retail clients, not just financial product advisers.

(c) where personal advice is provided, prepare and provide a Statement of Advice (SOA).

Note: Part 7.7 applies to the provision of all financial services. However, this guide generally considers Pt 7.7 only in relation to the provision of financial product advice to retail clients. This guide does not generally cover:

(a) Pt 7.7 obligations as far as they may apply to classes of financial service other than financial product advice (such as the FSG requirements as they apply to dealing);

(b) laws in detail (other than Pt 7.7 and Div 2 of Pt 7.7A) that may be relevant to the provision of retail financial product advice;

(c) financial product advice provided to non-retail (wholesale) clients; or

(d) the product disclosure obligations in Pt 7.9.

RG 175.4

The disclosure obligations in Pt 7.7 apply to `providing entities'. A providing entity may be an Australian financial services (AFS) licensee or an authorised representative: see RG 175.30. A providing entity includes a provider of secondary services.

Note: A secondary service provider is an AFS licensee or authorised representative who provides a financial service to a retail client via an intermediary: see RG 175.129.

RG 175.5 RG 175.6

Giving a general advice warning

Under s949A, providing entities must give a prescribed `general advice warning' when providing general advice to a retail client: see RG 175.51? RG 175.54.

We have given relief under ASIC Corporations (General Advice Warning) Instrument 2015/540 to allow providing entities to give a

? Australian Securities and Investments Commission November 2017

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