Obligations to retail clients - a short description
This page gives a short description of documents and obligations to retail clients - see our table to find out which obligations apply to you.
Updated as at 11 March 2004.
Documents you must provide
Financial Services Guide (ss942B, 944A-945B)
- Designed to ensure prospective retail clients are able to make an informed decision whether to acquire a financial service that is offered.
- Contains information, such as the source of the service provider's remuneration and relationships with issuers of financial products, which might reasonably be expected to influence the service provider (s942B).
- In some cases, may be combined with a Product Disclosure Statement in a single document (reg 7.7.08A; ASIC class order CO 03/448).
- May not need to be given to the client in some situations, particularly where the advice is general advice only.
Statement of Advice (ss946A-947D)
- Based on a consideration of one or more of the client's objectives, financial situation and needs - you must have a reasonable basis for your advice, based on information about the client obtained by making reasonable enquiries. The advice must be appropriate to the client.
- Must disclose benefits etc which might reasonably be expected to be capable of influencing the service provider (s947B). (As a result of proposed amendments to the Corporations Regulations, some disclosure documents (including SOA) will be required to disclose various amounts associated with the financial product (such as costs, benefits, interests and service provider remuneration) as amounts in dollars unless ASIC determines that, for a compelling reason, dollar disclosure is not possible, in which case disclosure must be made in percentage terms or as a description of the method of calculating the amounts (including, if appropriate, worked dollar examples) instead. At this stage, the proposed regulations to implement these dollar disclosure requirements are intended to commence on 1 July 2004. However, there is pressure from industry and consumer groups to extend the commencement date and, in any case, concerns have been raised by the Opposition parties and others about how the Government is proposing to regulate this issue. For further information about these new requirements and what they will mean for Australian financial services licensees and product issuers, refer to our report on this issue. To keep up–to–date with the latest developments, refer to our Breaking News.)
- If the client has declined to give you the personal information you need, you must also give them a warning that your advice has been prepared based on incomplete or inaccurate information (s945B).
- In some circumstances, may incorporate by reference some information that the client has already received in a previous SOA (ASIC class order CO 04/576).
Product Disclosure Statement
- Designed to provide consumers with sufficient information to make informed decisions about buying financial products. Purpose is to provide a means of comparing a range of products. In some cases, may be combined with a Financial Services Guide in a single document (reg 7.7.08A; ASIC class order CO 03/448).
- Analogous to the pre-FSR prospectus, key features statements and disclosure requirements set out in Life Circulars.
- PDS for managed funds that are, or intended to be, traded on a financial market (ie listed) must be lodged with ASIC prior to distribution to clients. It won't be registered but, if the product can't be traded at the time of lodgement, will be subject to a 7-14 day exposure period.
- There are no time limits on the currency of a PDS. However, it must be either replaced or supplemented if it becomes materially misleading or deceptive.
- Can't incorporate information by reference, but can be made up of more than one document.
- Multi-issuer PDS are permitted in some cases (ASIC class orders CO 03/876 and CO 03/1092).
It must be up-to-date (s1012J) and include information about (ss1013C-1013G):
- Any significant benefits and risks associated with the holding of a product.
- Amounts payable by the investor, for example entry and exit fees, commissions and ongoing management charges. (As noted above in relation to SOA, proposed changes to the Corporations Regulations, which are currently intended to take effect from 1 July 2004 (although the commencement date may be delayed), will require the disclosure of product costs, benefits, interests and remuneration as amounts in dollars in PDS unless ASIC determines in the circumstances noted above that disclosure may instead be made in percentage terms or by way of a description of the calculation method of the relevant amounts. Refer to our report on this issue for further information and to Breaking News for the latest developments.)
- Significant features of the product, for example preservation requirements for superannuation products.
- Significant taxation implications of products of that kind.
- Cooling-off arrangements.
(In some cases, PDS issuers may be exempt from the requirement to ensure a PDS is up-to-date at the time it is given to an investor, provided the issuer makes the up-to-date information (which must not be materially adverse information of a kind that would require disclosure in a supplementary PDS) available through a web site, a toll-free telephone service, or other facility that provides convenient access for investors (ASIC class order CO 03/0237).)
It must be dated.
Other information you must provide
Ongoing disclosure requirements
- Apply to all products for which PDS are required except managed fund products which are subject to the requirements of Chapter 6CA of the Corporations Act.
Periodic reporting requirements
- To provide the investor with the information needed to understand the investment, such as opening and closing balances, any increases in contributions, returns on investment. (Periodic statements are also affected by the proposed dollar disclosure requirement changes to the Corporations Regulations (referred to above in relation to SOA and PDS) – refer to our report on this issue for further information and to Breaking News for the latest developments.)
- This must be annual, but may be more frequent.
Additional information on request
Need only be provided if the information:
- has previously been made generally available to the public;
- might reasonably influence the decision to acquire the product; and
- is reasonably practicable to provide.
Confirmation of transactions
- Applies to all financial products, including securities.
- Not required, in various situations, for example additional contributions towards a product, which were agreed to when the product was purchased, or due to an increase in an external factor.
Cooling-off periods
A 14 day cooling-off period applies to the following:
- risk insurance products (general and life);
- investment life insurance products;
- unlisted managed fund products;
- superannuation products; and
- Retirement Savings Accounts.
The cooling-off period commences on the earlier of:
- the time the confirmation requirement has been complied with; or
- the fifth day after the product was issued or sold to the investor.
