Senate

Revised Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon J. B. Hockey MP)

Chapter 4 Statements of Advice

Outline of Chapter

4.1 Schedule 1 to the Bill amends Part 7.7A of the Corporations Act 2001 (Corporations Act) to amend the Statement of Advice (SOA) provisions.

Context of Amendments

4.2 The current law requires a providing entity to give a SOA when personal advice is given to a retail client (except in certain circumstances).

4.3 Subdivision D of Division 3 provides requirements in relation to the content of the SOA.

4.4 The Government has committed to implementing additional improvements to the SOA requirements to increase transparency in the services that clients are receiving, ensuring they are aware of their rights and their adviser's obligations.

Summary of new law

4.5 The Bill makes three key amendments to the SOA requirements:

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requiring that the SOA be signed by the providing entity, or an individual acting on behalf of the providing entity, and acknowledged by the client;

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providing clarity that the client may seek further or varied advice, and requiring that, if further or varied advice is sought, the client's instructions for further or varied advice must be confirmed in writing, signed by the client and acknowledged by the adviser; and

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amending the content requirements of the SOA.

Comparison of key features of new law and current law

Detailed explanation of the new law

Signing and acknowledgement of the SOA

4.6 The new law provides that:

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the SOA must be signed by the providing entity, or an individual acting on behalf of the providing entity; and

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the client must acknowledge receipt of the SOA by signing the SOA as soon as practicable after receiving the SOA.

[Schedule 1, item 1A, subsections 946A(2A) and (2B)]

4.7 The client does not commit an offence if he or she does not provide acknowledgement of the SOA. Further, the providing entity does not fail to give the SOA to the client in accordance with Subdivision D of Division 3 of Part 7.7 merely because the client does not acknowledge the SOA. [Schedule 1, item 1A, subsection 946A(2C)]

4.8 The significance of the client's signature on the SOA is to acknowledge receipt of the SOA. In signing the SOA, the client is not agreeing or accepting the SOA, and the client is not signing that they wish the advice in the SOA to be executed.

4.9 Whilst the individual that can sign the SOA on behalf of the providing entity is a matter to be determined by the providing entity, in most instances the individual signing would be the advice provider.

4.10 A signature can include a written signature or an electronic signature (as defined by section 10 of the Electronic Transactions Act 1999).

Seeking further or varied advice

4.11 The new law provides that, to avoid doubt, a retail client who is given the SOA may seek further or varied advice from the providing entity; such further or varied advice may be required if, for example, the client's relevant circumstances change. [Schedule 1, item 1A, subsection 946A(2D)]

4.12 If further or varied advice is sought, the providing entity must ensure that instructions from the client are: documented in writing; signed by the client; and acknowledged by the providing entity, or an individual acting on behalf of the providing entity. [Schedule 1, item 1A, subsections 946A(2E) and (2G)]

4.13 The instructions for further or varied advice can be documented in writing and signed by the client either before or after the advice is given. This allows for flexibility in time-critical situations. For example, if the stock market crashes and a client seeks time-critical further advice that they subsequently want actioned immediately, the instructions for further or varied advice can be documented in writing and signed by the client after the advice has been given.

4.14 The providing entity does not commit an offence if the client does not sign a written copy of the instructions for that further or varied advice. Also, the fact that the client does not sign a written copy of the instructions for that further or varied advice is not evidence that the instructions have not been given. As such, the providing entity is able to proceed with providing further or varied advice-particularly time-critical advice-even if the client has not yet signed. [Schedule 1, item 1A, subsection 946A(2F)]

4.15 To clarify: the changes outlined in this chapter will not alter any other existing requirements around the provision of personal advice, including the situations in which a Statement of Advice-or Record of Advice-is required.

Content requirements of the SOA

4.16 The new law requires that advisers include the following statements and information in the SOA to ensure clients are aware of their existing rights and their adviser's obligations under the Corporations Act:

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the provider of the advice is required to provide the advice in accordance with the best interests duty (section 961B);

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the provider of the advice genuinely believes that the advice given is in the best interests of the client, given the client's relevant circumstances; the term 'relevant circumstances' is given meaning by section 961B of the Act;

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the provider of the advice is required in circumstances specified under section 961J to give priority to the client's interests when giving the advice;

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information on fees that have been, or may be, charged to the client in relation to the advice;

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This includes fees by the providing entity; a related body corporate of the providing entity; a director or employee of the providing entity or a related body corporate; an associate of any of the above; or any other person in relation to whom the regulations require the information to be provided.

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if the client enters into an ongoing fee arrangement with the providing entity to which Division 3 of Part 7.7A applies, that the providing entity must give the client a fee disclosure statement each year in relation to the ongoing fee arrangement;

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if the providing entity recommends that the client acquire a financial product, a statement advising the client that they may have the right to return the product under Division 5 of part 7.9 within a cooling-off period; and

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that the client may seek further or varied advice from the providing entity at any time.

[Schedule 1, items 1B, 1C, 1D, 1E, 1F, 1G, 1H and 1J, paragraphs 947B(2)(ca), (cb), (cc), (cd), (ce), (fa), (fb) and (h), 947C(2)(da), (db), (dc), (dd), (de), (ga), (gb) and (i), and notes at the end of subsections 947B(2) and 947C(2)]

4.17 Fees to be included in the SOA are those in relation to providing the advice; product fees are not intended to be included in the SOA.

Application and transitional provisions

4.18 To the extent that they relate to instructions for further or varied advice, the amendments apply in relation to instructions given on or after the later of the commencement day of the Bill and 1 January 2015.

4.19 All other amendments to the SOA provisions apply in relation to Statements of Advice given on or after the later of the commencement day of the Bill and 1 January 2015. [Schedule 1, item 43, section 1531AA]