Recent audits have revealed a pattern of non-compliance in how advisers document product replacements in Statements of Advice (SoAs). While ASIC’s RG 175 does not prescribe a specific format, replacement product disclosures must be complete, clear, concise, and client-focused.
Here are three common issues identified:
- Missing Products in the Replacement Table
In one case, an industry fund was recommended for replacement, but the fund was not included in the Replacement Product table. This omission undermines the client’s ability to compare options and understand the implications of the advice. - Consequences Hidden in Appendices
Another file included the consequences of replacement in an appendix, rather than in the Replacement Product table itself. This fragmented approach makes it harder for clients to assess the trade-offs and may breach disclosure obligations under s947D of the Corporations Act. - Inconsistent Fee Formats
One SoA disclosed fees as a percentage (e.g. 0.88%), while the corresponding ROA used a dollar figure (e.g. $3,300). Without explanation, this inconsistency can confuse clients and raise red flags for auditors.
📜 Regulatory Reference
- Corporations Act 2001 – s947D: Requires that advice documents clearly disclose the consequences of replacing one financial product with another.
- ASIC RG 175: Advisers must provide enough relevant information to allow a client to make an informed decision. This includes the benefits, risks, and costs of replacement products, ideally presented in a consolidated and accessible format.
🛠️ AICS Best Practice Guidance
- Include all replacement products in the Replacement Product table—even if they are industry funds.
- Summarise all consequences (fees, features lost/gained, tax implications) directly in the table, not in appendices.
- Use consistent fee formats across SoAs and RoAs or clearly explain any differences.
- Consider referencing the replacement rationale in the strategy section, but ensure all key details are also in the replacement section.
🏆 Why It Matters: Clear, consolidated disclosure empowers clients to make informed decisions and protects advisers from compliance breaches. It also demonstrates professionalism and transparency, key pillars of trust in financial advice.
⚠️ Consequences of Inaction: Failure to properly document product replacements can result in audit findings, remediation, and potential breaches of the Best Interest Duty. It may also expose licensees to AFCA complaints or ASIC scrutiny.
Call to Action: Need a second set of eyes on your advice templates? Book a file review with AICS today: https://www.aicsolutions.com.au/contact or email hello@aicsolutions.com.au
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