Understanding The Advice Process
Understanding the Financial Advice Process in Australia: A Step-by-Step Guide
The provision of personal financial advice in Australia is governed by a robust regulatory framework designed to protect clients and ensure advisers act in their best interests. Under the Corporations Act 2001, licensees and their authorised representatives must follow a structured advice process supported by clear, auditable documentation.
Here’s an overview of the key steps in the advice process and why each is crucial from a compliance perspective.
1. Financial Services Guide (FSG) or Website Disclosure Statement (WDI)
What is an FSG?
The FSG is a disclosure document that provides clients with essential information about the licensee and their authorised representatives.
What is a WDI?
Instead of providing your retail client with a physical FSG, you can elect to use Website Disclosure Information. This is the same information as provided in your FSG, but it is prominently displayed on your website. Using a WDI, alleviates your obligation to provide an FSg.
Why it matters for compliance:
Under Section 941A of the Corporations Act, the FSG must be provided to a retail client before any financial service is provided. It outlines who is providing the advice, remuneration details, associations with product issuers, and dispute resolution procedures. Failure to issue the FSG correctly may result in a breach of disclosure obligations.
Where can i access it:
You can access your FSG from the iC2 Compliance Hub. It has been provided to you from your IIP Complaince Manager. If you need an updated copym, please contact your Compliance Manager.
For access to the WDI template for your website, you can refer to teh following blog for the template https://www.iipdealergroup.com.au/iipblog/28k386cqqomulm6ca6zirh2919haby
2. Engagement Letter
What is it?
An Engagement Letter formalises the adviser-client relationship and outlines the scope of advice, fees, and responsibilities.
Why it matters for compliance:
Although not legally required under the Act, it forms a key part of demonstrating informed client consent and agreement to terms of engagement, which is part of Standard 4 of the Code of Ethics It supports compliance with Best Interests Duty (s961B) by clearly documenting what the client is seeking advice on and what the adviser has agreed to provide.
Where Can i access it?
Xplan: You can generate the Engagement Letter from Xplan in ‘Stage 1: Engagement Letter’ of the Advice Process wizard.
iC2 App: You can generate the Engagement Letter from the wizard from the iC2 Clients App.
Other CRM’s: Contact your CRM provider for a the Engagement Letter template, or we can provide you with a manual template.
3. Fact Find / Client Data Collection
What is it?
This step involves gathering comprehensive details about the client’s financial situation, goals, objectives, risk tolerance, and personal circumstances.
Why it matters for compliance:
The Know Your Client (KYC) requirement under Section 961B(2)(b) mandates advisers to base advice on accurate and complete client information. An incomplete fact find can lead to inappropriate advice and may result in a breach of Best Interests Duty and appropriate advice obligations.
4. Product Research and Analysis
What is it?
Product research involves comparing available financial products based on cost, performance, features, and suitability.
Why it matters for compliance:
Under RG 175.219–RG 175.231, advisers must demonstrate a reasonable basis for advice, which includes thorough product research. This also aligns with s961G, which requires that the advice be appropriate to the client’s needs and that alternative strategies or products have been considered.
5. Statement of Advice (SoA)
What is it?
The SoA is a formal advice document that sets out the adviser’s recommendations, how they relate to the client’s goals, and any associated fees and conflicts.
Why it matters for compliance:
Required under Section 946A, the SoA is the cornerstone of advice disclosure. It evidences compliance with Best Interests Duty, appropriate advice, fee transparency, and conflict of interest disclosure. It must be provided when personal financial product advice is given to a retail client.
6. Authority to Proceed (ATP)
What is it?
A signed Authority to Proceed confirms that the client agrees with the recommendations and instructs the adviser to implement them.
Why it matters for compliance:
This step is critical for ensuring informed consent. From a compliance perspective, it helps demonstrate that the client had adequate time to consider the advice and voluntarily approved its implementation. It supports audit trails and protects against claims of unauthorised transactions.
7. Application and Implementation Forms
What is it?
These include product application forms, superannuation rollover forms, insurance applications, or investment platform forms used to execute the advice.
Why it matters for compliance:
Correctly completed and authorised application forms demonstrate accurate implementation of advice and client instruction. They help meet obligations under Section 912A(1)(a), which requires licensees to do all things necessary to ensure financial services are provided efficiently, honestly, and fairly.
8. Ongoing or Annual Agreements (OFA)
What is it?
These are formal agreements for ongoing advice services. They must be renewed annually if fees are deducted from a client's product.
Why it matters for compliance:
From 1 July 2021, under the Financial Sector Reform (Hayne Royal Commission Response No. 2) Act 2021, advisers must obtain Annual Written Consent for ongoing fee arrangements. This is enforced by s962U, s962P–T, and supported by ASIC RG 263. Failure to comply can result in fees being unlawfully deducted and potential licensee breaches.
Conclusion
Every step in the financial advice process plays a pivotal role in ensuring that the advice provided is compliant, appropriate, transparent, and in the client’s best interests. Advisers and licensees must not only follow the process but also retain comprehensive records as part of audit and supervision obligations under RG 104.
By embedding these steps into your advice framework, you protect your clients—and your license.