Basis for Recommendation involving a Financial Product

[Archived User]

Hi 

If advice involves a strategy recommendation such as a class of product (eg an annuity, platform, wrap etc for our wealth creation strategy) and the advice also involves a specific financial product (eg ABC wrap) is the basis for the product covered within the strategy recommendation? Alternatively, do you need to relate both the strategy (or class of product) and the specific product back to the client’s relevant personal circumstances? 

I’ve researched this issue but have been unable to find a definitive answer. Section 761A defines relevant personal circumstances as any matter relevant to the advice. RG175.421 describes what those circumstances generally involve in cases where the advice relates to a product ‘with an investment component’ (ie managed funds, shares, investment portfolio). 

However, it is unclear what those circumstances would include for wraps, platforms, margin lending facilities or other administration services. Could it therefore be that a recommended strategy which meets a client’s circumstances would also provide the basis for the specific product or administration service recommended? 

I’m interested to hear your views, experiences or if you could refer me to any material which covers this. 

Regards

James

[Clare McAdam]

Hi James,

In essence, the recommendation needs to currently meet the reasonable basis obligations in s945A. Our view is that this applies and relates to both the strategy and the product whether it be the platform/wrap or underlying assets/funds.

Similarly, under best interests, the safe harbour steps require strategy recommendations (in RG 175,  ASIC is understandably very focused on strategy first and product second) and if reasonable investigation into financial products that might achieve the client: objectives and needs.

Once again, we think this investigation would address the specific platform/wrap and specific underlying financial products.

Contact us, if you want to seek legal advice

Kind Regards,

Author: Tim Nethercote

 

[Author]

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