Communicating the Advice
Any recommendation to buy shares must be communicated via a statement of advice or a further record of advice. The requirements for each of these are detailed below.
Before we examine how a statement of advice should be constructed to provide advice to buy, hold or dispose of direct share investments, let’s look at one other key aspect of the advice process that must be adhered to.
The basis for the advice
For the adviser, the most important aspect of advising on shares, from a compliance point of view, is to ensure that the advice is in the client’s best interests. This is the fundamental requirement for all financial advice.
For direct share investment to be in a client’s best interests, the following criteria (at a minimum) need to be met:
- The client needs to be willing to invest in shares;
- The share investment needs to be warranted given the client’s financial circumstances, both now and as they are expected to be in the future;
- The client needs to be able to manage the process of buying, holding and selling the shares themselves;
- The client needs to understand that shares are a long-term proposition, to be taken with a minimum ten-year timeframe in mind; and
- You need to be confident that another reasonable financial planner would agree with you that the investment was in the client’s best interests.
This last criterion, the concept of a reasonable advice provider, is further explained in ASIC’s Regulatory Guide RG 175, especially from section 225 onwards.
In order to ensure that your advice is compliant – and that you can demonstrate that compliance – your file must clearly demonstrate that each of the above criteria have been met.
At a minimum your file should contain a clear indication – usually by way of an expressed goal on your fact finder – that the client wishes to receive investment advice.
The Statement of Advice
Direct shares are a financial product and any advice to acquire, hold or dispose of a direct share investment must be communicated in writing. The initial advice must be provided in a statement of advice, with records of further advice being acceptable in many contexts from that point forward.
Please note that a statement of advice must always be prepared initially. Records of further advice are only acceptable if they can refer back to a fuller statement of advice.
You can read about statements of advice more generally by following the hyperlinks above.
Example Statements of Advice
You can follow these links to view sample statements of advice for the recommendation of direct share investments: