Stage 5 - Implementation

Chapter 9

Authority to Proceed

Your client must sign the Authority to Proceed (found at the end of the SOA template) before you can begin implementing the advice. The signed Authority to Proceed
should be placed in the client file.

When providing advice remotely please refer to the Affinia remote advice procedure by clicking on the link in the documents and links section of this chapter.

Product Disclosure Documentation

You must make sure that the client has a Product Disclosure Statement (PDS) for each product they will be purchasing.

Product Applications

You should identify the actions needed to implement the recommendations. Some of these actions may need to be completed by the client (e.g. supplying certified documents),
others might be completed by you as their Representative.

If there are applications that need to be completed you must ensure that each application is filled in completely before it is signed by the client. You can assist your clients by helping to fill in the forms, but it is important that you explain to them what each document is for and give them a chance to check the information and understand what they are purchasing.

You should aim to send all applications to the relevant institution within 24 hours of their being signed, and keep a copy of each application in the client file. Each client should be provided with a copy of their applications.

Product Replacement

Product Replacement Rules Process Step Compliance
Discovery and Documentation – Goals Goals, client priorities and timeframes – explicit and implicit Step 1 and 2 Safe Harbour
Current product features and solutions already
available to the client
Investigation of current and available asset allocation within the existing fund and current super product features – fit to strategy? Step 5 Safe Harbour
 Current product gaps Strategic advice – super feature and managed investment features i.e. liquidity, alternative product strategy Step 5 Safe Harbour
 Recommended product fit Fit to client goals and strategy, super and managed investment features  Step 5 and 6
 Product Gap Comparison  From steps above Conflicts prioritisation rule – benchmarking
 Cost analysis Cost structure – before and after recommended asset allocation/ investments (existing/new product) Conflicts prioritisation rule – benchmarking
Consequences of product replacement Strategy, consequences and loss of benefits – value to client/another planner  Step 6
 Benefit valuation Are the benefits valued by the client? Is the cost disclosed?  Step 6

 

ASIC 515 Considerations

 Key Issue  Considerations

Recommending a financial product: s961B(2)(e)

Note: This is a safe harbour step

Before recommending that a customer acquire a financial product, we expect advisers to formulate the strategy that they are basing their advice on. In some cases, it is unlikely that a product recommendation would be in the customer’s best interests, given the subject matter of the advice sought. For example:

  • A customer experiencing financial difficulty may need advice on how to manage their cash flow and reduce debt. If the customer is unwilling or unable to pay for this advice, consideration should be given to referring the customer to a financial counsellor, or
  • A customer whose existing superannuation and insurance products meet their needs and objectives may need advice to make no changes and continue what they are already doing.

A Representative should consider the customer’s existing financial products and whether the customer’s needs and objectives can be met by retaining (or modifying) their existing financial products.

A Representative must conduct a reasonable investigation into products that will meet the customer’s needs and objectives. The level of inquiries will vary according to the complexity of the advice, including the financial products and strategies recommended. Complex financial products and strategies necessitate more extensive inquiries.

Advisers can refer to investigations conducted by their AFS licensee or various service providers (e.g. research houses)
to assist their own inquiries. However, product research does not take into account the customer’s unique personal circumstances, objectives, and needs. The adviser is ultimately responsible for ensuring that the product is suitable for the customer, given their relevant circumstances.

Note: Not all research is the same. For further information, see Regulatory Guide 79 Research report providers: Improving the quality of investment research (RG 79).

In summary, a customer file should demonstrate:

  • Whether it was reasonable to recommend a financial product, taking into account the reasons why the customer sought advice
  • Consideration of strategic advice that may form the basis of the financial product recommendations
  • Consideration and investigation of financial products, taking into account:
  • - The customer’s existing financial products
  • - Financial products that might meet the customer’s needs and objectives (including the recommended financial products);
  • - A clear rationale about why the recommended financial products meet the customer’s needs and objectives when compared with other products considered (including the customer’s existing products)
  • - Any research used by the adviser.

 

Key Issue

Making a recommendation to replace a financial product: s961B(2)(e)

Note: This is a safe harbour step

Considerations 

Advice that recommends replacing one financial product with another (switching advice) must be in the customer’s best interests. Advisers should carefully consider important risks to the customer.

This is particularly important where a Representative recommends a switch of superannuation and/or insurance products, because this can have significant risks of lost benefits for a customer. In addition, a superannuation fund often contains insurance cover that should always be considered and investigated when providing switching advice.

Once a Representative has established it is reasonable to recommend a financial product, before recommending a replacement product, the adviser must consider and investigate:

  • The customer’s existing products;
  • The new financial products that the customer could potentially acquire or invest in; and
  • The new recommended products.

Switching advice should:

  • Be clear, concise and effective;
  • Be easily understandable and enable the customer to make an informed decision; and
  • Compare ‘like-for-like’ fees and features of existing and new products.

When giving switching advice, a Representative must consider the advantages and disadvantages, including the costs and risks, of both the existing and new products. This obligation also applies if a Representative recommends that the customer redirects their superannuation contributions into a new superannuation fund, including an SMSF, or other product.

Advice may leave the customer in a better position if there are overall cost savings for the customer that override the loss of any benefits. The overall cost savings must take into account all the circumstances, including the costof the replacement product and the adviser’s fees.

Switching advice will generally not be in the customer’s best interest if the adviser knows (or should have known) that:

  • The overall benefits likely to result from the replacement product would be lower than under the existing product, unless outweighed by overall cost savings, or
  • The cost of the replacement product is higher than the existing product, unless the replacement product better satisfies the customer’s needs.

Deficient switching advice may lead to the adviser failing the obligation to act in the customer’s best interests (s961B(1)), satisfy the safe harbour step in s961B(2)(e), or provide appropriate advice (s961G).

Duty of Disclosure

When applying for insurance products, your clients have a duty to tell the insurer everything they know that might be relevant to the insurer’s decision to accept the risk. You should explain the client’s duty of disclosure to them carefully before they sign any insurance application forms.

Electronic Applications

If your client is applying via an electronic application, you must still:

  • Ensure that the application is sent to the client for review and signing before the application is submitted

  • Keep a copy of the application in the client file.

Many institutions have systems in place to enable Representatives to send electronic applications to their clients for review before the application is submitted. Even in
circumstances where this is not available it is still your responsibility to ensure that your client has reviewed the application before it is submitted for processing.

Client Money

All products must be purchased either with a cheque made payable to the relevant product issuer or funds transfer from the client directly to the product issuer.

Affinia representatives are strictly prohibited from handling client money in the form of cash or processing client’s cheques or money transfers through their personal or business accounts.

Cooling Off Periods

Most products have a cooling off period that allows your clients to change their minds after they have made a purchase. You should check the provisions for each product carefully and let the client know how long the cooling off period is.

Check Products Have Been Issued

Once a product has been issued the product issuer will send a written confirmation. If you do not receive a written confirmation within a reasonable time you should make enquiries with the product issuer on your client’s behalf.

If Insurance Cover is Declined

If a client’s application for insurance is declined you should communicate this to your client as soon as possible. You should ask the product issuer why
the cover has been declined so you can discuss this with the client.

Depending upon why the cover was declined you should then either look for another product that will fulfil the recommended strategy, or, if necessary, amend the recommended strategy to allow your client to meet their needs, goals and objectives without the insurance cover.

Review

Review

Section Six - Advice Handbook

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