note: the authors, , may not be disclosed without express...

1

ResponsetoCP284To: NatashaNguyenNatasha.nguyen@asic.gov.au

Due: 12July.2017

From: FirstMutualAustraliaPtyLtd,AFSL423710

Note:Theauthors, ,maynotbedisclosedwithoutexpresswrittenpermission.

Re: SampleSoAinCP284

Thefollowingisinfoursections

1. ResponseintheformatoftheexampleSoAinCP284+pointsspecificallyaboutnominateditems2. Commentsinrelationtotheadvicebeingshownintheexample3. Arecommendedstructure4. Analternative(compromise)structurefortheSoAinthestyleputforwardbyASIC

WewouldbemostwillingtobeinvolvedonaworkgrouptoaddresscontentandsizeoftheSoA.

13

2. CommentsreAdviceintheExampleProvidedinCP284

Page1-CommissiondisclosureASICseemstobeintending(onbehalfofthegovernment)toeliminatecommissionsonliferiskproductsassoonaspossible,expectingFeeforServicetobeutilised,adirectinitialchargetotheclientinsteadofanindirectchargetotheinsureroverthelifetimeofacontract.Theunderlyingassumptionseemstobethatmumanddadandsmallbusinessclientswillbehappytopayfeesaround$3,000-$4,000forscaledriskadviceandimplementationoftheproductrecommendations.Noserviceproviderwouldpresentaproposaltoaclientwiththefrontpagesolelyoccupiedbythedetailoftheupfrontfeestobepaid asitisillogical..Generally,noriskadvisorhasaproblemwiththedisclosureofcommission,ifit’sinatimelyandappropriatedisclosure.Experiencedriskadviserswillbringthematterofremunerationupverysoonintothefirstappointmentwiththefactgatheringexercises,becausetheydon’twishtoruntheriskofhavingtheadvicerejectedatimplementationstagebytheclientbeingdistractedbywhatmayappearinitiallyasanunreasonableamountofremuneration.(Clientsmustbeconstantlyremindedofthecostsofrunninganadvisorybusinessandareusuallyamazedwhenadvisersgivethemareasonablydetailedlistofcosts.)Ifpage1oftheSOAistocontaindetailsofthecommission(asillustrated)whichmaybepayableiftheproductsaleiscompleted,thenthelifeinsuranceadviceindustrywillfold withtheresultbeingthousandsoutofworkandmillionswithinadequateinsurancecoverresultingonanadditionalburdenongovernmentbenefits.Thereisnoobviouslogictothisrequirement.Wedon’tknowwhyASICofficethinkthatdisclosureofthefirstandsecondyearcommissiononpage1oftheSOA,Noexperiencedliferiskadvisorwouldrunthechanceoftheclient,whohadpreviouslyagreedtoproceedontheprinciplethatcommissionswouldbepaidbytheproductmanufacturertotheadviserafterthepolicieswereinforce,changingtheirmindwhentheysawthedollarvalueofthecommissioninthetableintheSOA.Advisersjustdon’tdothat-it’stoorisky.Adviserswillalwaysbringthecommissiontotheattentionoftheprospectiveclient

14

Oneeasysolutiontothisexpressionofunwarrantedconcernaboutnon-disclosureofcommissionbyadvisersisthatAdviserscouldberequiredtohavetheclientinitialanddatethecommissiondisclosuretableinthefilecopyoftheSOA,atthepointofsigningthe“AuthoritytoProceed”attherearoftheSOA.Page2“Attachments”Thetableofcontents(index)shouldbeonapagebyitselfsotheycanbeeasilyreadataglance,notcrowdedout.

Itisincorrecttostate“eachPDSisaboutaspecificfinancialproduct”.Noneofthe12primaryretailinsurershavePDS’swhicharelimitedtojustonetypeofinsurance:PDSscontaininformationonalltheofferingsofthatinsureracrossthelinesoftermlifeinsurance,TPDcover,traumacoverandincomeprotection meaningclientsarereceivinginformationthatisirrelevanttothem.MostPDSsareover40pagesofveryobtuselegalisticlanguage,andtheymaybeconfusingtoeventhemostknowledgablyconsumer,particularlyifthePolicydocumentisalsoincluded.Forexample,mostPDSscontaininformationonthe“professionallevel”incomeprotectiononofferbythatinsurer,aswellasthe“tradesmanspecial“withasimilarname.AdvisersprovidethePDStoclientsbecausenotonlyisitalegalrequirement,thePDScontainsdetailsoftheproducttheadviserisrecommendingandalsotheapplicationformandtheadviser’s“signoff”ontheinterimcoverwhichexiststhemomenttheclientsignstheapplicationandprovidesaninstrumentforthefuturepaymentofthepremiumsSOAscontainanAuthoritytoProceed,andeachoneofthoseauthoritiescontainreferencestoPDSsassociatedwiththeparticularriskproductsrecommendedPage3–PersonalDetailsWhydoesthefactfindhavetoberepeatedonpage4ofanSOAwhentheclienthassignedthatthefactfindisaccurate?ToinsistontheFactFindbeingrepeatedintheSOAmerelytoassuageauditorsdoesnothingforclientcommunication.However,thatdoesnotstoptheadviserfromreferencingintheSOAaparticular“fact“inthefactfindertojustifyparticularadvice.IfASICisgoingtoinsistonthefactfinderbeingrepeatedonpage4oftheSOA,thenit’sprobablybetterthatthefactsbecompleteandaccurate.Forexample,itisassumedbasedontheinformationprovidedintheASICsamplethatBradworksinprivateenterprise.UnlessBradisworkingforanoverseas

15

basedITcompanyoperatinginAustralia(earningmorethanthe$85,000peryearshown)noAustralianprivatebusinesswillofferafacilitytoaccumulative

sickleavebeyondthestatutory2weeks.TheamountofsickleavethatBradholdsallowshimintheorytoruna90-daywaitingperiodonhisincomeprotection,whichisinfact120daywaitingperiodwhenyouallowfortheextramonthforthefirstpaymentofbenefit.Recommending90daywaitingperiodsforincomeprotectionbasedon,ifnotactuallymatching,accumulatedsickleaveoveronemonth,isahigh-

riskstrategy.AsnotedaboveBradmayhaveeliminatedhis90-daysickleavecreditsbyaseriesofshortsicknessesbeforeheisforcedoffwork.Butthereisoneotherdanger:ifBradhasaperiodofTotalDisabilityofsometwoyearsandissuchavaluablepersonthatwhenhisdisabilityendshisemployerwantshimtoreturntohisoldjob.AtthispointBradhasadilemma,broughtonbypoorstrategicadvice.Hissickleavecreditsarenolongerinexistenceandifthesamedisabilityre-occurs,oranotherdisabilityoccurs,Bradwillbewithoutpayfor120days.WhatisrequiredhereisaquestionofbalanceandaseriousdiscussionwithBrad,highlightingthefinancialstressthatwillbeinvolvedinnormalsituations,butalsobecausehiswifeworkspart-timeforaverylowwage,andmayevennotworkforthatwagesifshemustcareforhimathomebecauseofhisdisability.

Twootherissuesstandoutofthispageofincompletepersonaldetails.• WhatisthebasisforthefamilyhistorystatementofBrad?• Theassetsandliabilitiestablelists“Ozindustry”asbeingZara’ssuperannuationfund.Itiscriticallyimportanttonotewhethertheinsurancecover

isdefaultcover,theageitstartstospiraldowntozerocover,anddoesthatconflictwithidentifiedneed.Alternatively,thecovermayhavebeenpurchasedafterunderwritingfromthefundoneitherafixedcoverbasis,oristhebenefitsubjecttoCPI.

Allofthatinformationisofhugerelevance.Thisinformationingreaterdetailshouldbeinthefactfinderandnotstraddlingpage4ofanSOA.

Page5Thisinformationshouldbeinthefactfinderonfile,notintheSOA.Afterall,theclienthasverifiedthefactfinder.IfASICisgoingtoinsistthatthisinformationshouldbeinthefrontoftheSOA,thenitmustbequalified.Thereisnodetailonwhetherthesuperannuationcoverisdefaultorpurchasedfromthefundwithunderwriting,averyimportantdifference;thereisnostatementthatthereisnoincomeprotectionincludedintheinsuranceofferingoftherelevantsuperfunds;moreimportantlythestatementthatBradhas$200,000TPDinsuperismisleading,becauseittakesnoaccountofthelumpsumTPDtaxwhichisapplicable,dependingonageandvariousvariables,atarateofaround20%.Bradinrealityholds$160,000ofAnyoccupationTPDcover.

16

ThereshouldbeawarningintheSOAregardingthedefaultinsuranceheldinapublicoffersuperannuationfundwheresuchcoveristobereliedon;thatthedefaultcoverwillreducefromaroundage35toapproximatelyzeroatage65,andif,atacertainage,theclientisanticipatinganincreasedneed,andthatthelevelofcoverwouldhavetobeobtainedelsewhere(subjecttogoodhealth)ifthereducingfundcoverisretainedandlosingitsvalue.ItisnotuncommonforcouplestodownsizeandincreasetheirdebtwhenchildrenleavehomePage6ASICwarnabouttheuseofinsurancejargoninadvicedocuments.Yettheclientusesthephrase“comprehensivepersonalinsurancecover”.Whatexactlydoesthatmeaninthecontextofthisclient?Thisadvicehasaconsistent,mainflaw:theleveloftraumacoverand/orownoccupationTPDcoverisalarminglylow.Considerationshouldhavebeengiven,inthecircumstancesofthefamilysupportingtwoteenage/youngadultsineducationononeandahalfsalaries,topurchasingatraumapolicydesignedtotakeoutatleasthalfofthefamilymortgage,and,ifnecessary,reducingtheamountcalculatedforuninsurablemedicalexpenses.Thereshouldhavebeensomeannotateddiscussionastothemeritsorotherwiseofprotectingthatmortgagetoagreaterdegree,ifsomethinghappenstoZara,givenherlow-wage.Theremaybeanaffordabilityissueandperhapsthefutureplanstoeliminatethemortgageearlier,orputmoreintosuper,mayhavetobebalancedoutwiththeneedtoprotectthatmortgageifseriousillnessstrikes.The phrase “you would prefer any personal insurance premiums to be funded using your superannuation benefits” is jargonistic and should beaccompaniedbyawarningabouttherapidlydecreasinglifeandTPDpremiumsinsuminsured(orcoverage)inpublicofferfunds,ifthatisthecase.

Page7Ifthereisasimpleonesentencereferencetothecollectionoffactsavailableinthedocumentsignedbytheclientcalledthe“FactFinder”thisiswheretheSOAshouldstart.ThediscussionsonwhatBradwantshisTPDtodoshouldcontainreferencetothehighcostofhomemodificationswhenoneofthepersonslivinginthehomeisdisabledtosomeextent.Usuallythiswillinvolvemodificationsofbathrooms,kitchensandentryandaccesstothefrontandbackdoors.$100,000coulddisappearveryquicklyjustonmodifications.Withoutprovisionforreasonablehomemodifications,themaintenanceof“currentlifestyle”couldbedifficult.Asmentionedabove,thetraumarecommendationsinthisSOAaresubstandard.Firstpriorityshouldbetopayingoffeitherallorasignificantproportionofthemortgage,andthismayrequirerenegotiationwiththebanktoreducemonthlycommitments.TherecommendationinthisSOAisforasumof$50,000tobemadeavailabletocovertwoyearsofmortgagepayments,whichintrinsicallypresumesthatthefamilyhasthedisciplineto

17

retainthatsumofmoneyinanuntouchableaccountwithadrawdowneverymonth,inanenvironmentwheresomeorallincomemayhaveceased,asinthecaseofZara.Traumaclaimsareatimeofhighstress,andmostclients,ifproperlyadvised,willunderstandtheneedtorelievethemainnon-medicalstressintheirlives(theirmortgage)whenaseriousillnessorinjurystrikes.Solutionsshouldbediscussedandnoted,andcompromisesmayhavetobemade-that’sthenatureofouradvicebusiness,butproperlyinformedclientswouldprefertofindthemoneyfortheadditionalexpenseifitgivesthemoptionsatthetimeofsuchaseriousissue.Page8There is a philosophical debate illustrated on this page. Investment advisers advising on risk favour the utilisation of the surviving partner’s superaccumulationtocalculatetheamountofinsurancecoverrequiredondeath.Manyriskadviserswouldarguethatinmostcasesthat,thelowerearningpartnerhasverylittlesuperannuationaccumulation,andthataccordinglythehusband’saccumulation,(unlessitisasignificantamountofmorethan(say)$500,000)shouldbecreditedtothewife’ssuperannuationaccumulation,oraccessedbyhertocommenceapensionifappropriate.

Thecheapestformofinsuranceinanyfinancialplanislifeinsurance,andinmostcasesaccessingtheavailabilityofherhusband’ssuperannuation

fundbalance for the sakeofa fewpennies tobe spenton insurance isnotgoodpractice. Zarawill needall thehelp she canget tobuildupheraccumulationintheremainingyearsofherworkinglife,inordertohaveareasonablestandardofretirement,intheabsenceofherhusband.Thisadvicerecommendstheutilisation,ifBradhasaseriousillnessorinjuryandistotallyandpermanentlydisabled,oftheTPDpayoutcontainedinhissuperannuation.Thereisnoparticularmentionthatsuperannuationbenefit,ifcontainedina“splitpolicy“,isfirsttestedontheSISAnyOccupationtest,which means a requirement to prove serious and significant severity in the total & permanent disablement. It’s not clear in this advice whetherconsiderationshouldhavebeengiventotheuseofOwnOccupationTPD(it’soutsidesuperbutit’smuchmoreappropriate)tocanceloutthemortgageoncertificationofTPD,whetherornotina“splitcontract“.

Page9Thisisacontinuationofpage8inthatitsetsouttheinsurancerecommendationsforBrad.Asmentioned,thisandearlierreferencestoBrad’sincomeprotectionshouldcontainreferencetothedangersofmatchingsickleavewithawaitingperiodwhentheaccumulationofsickleaveismorethan30days.Therealsoshouldbementionedthatincomeprotectionbenefitsareassessablefortaxation.

There is also amore appropriatemethod tobeused in the calculationof hismonthlybenefit. Brad salary is $85,000per annumandhis employercontributes9.5%of$85,000tosuperi.e.histotalremunerationpackageis$93,075.Basingthebenefitonthetotalremunerationgivesamonthlybenefit

18

of$5,817.CalculatingitinthismannerallowsBradandSaratodecidewhethertheycanaffordtocontributetowardsBrad’ssuperannuation,orretainthatmoney,evenonamonthlybasis,tomeetmedicalexpensesandongoinglifestylecosts.ItaddssomeflexibilitytoasituationwheresavingswillbeexhaustedafterdisabilitystrikesandnoonehasthecapacitytosavemoneyafterafewmonthsofbeinginreceiptofbenefitsPage10Thereisnoparticularmentionastohowlongtheincomestreamof$30,000peryearistolast.Anycalculationofareplacementincomeneedafterthedeathofaspouseshouldnever,relyuponacontributiontohouseholdexpensesfromteenagersengaginginsecondaryeducation.Thatisindeedararity.TheTPDcalculationinvolvingreplacementofincomeshouldalsoaddressprovidingsomefundsforcarecosts,afterdiscussionwiththeclient.Page13The intention in the product overview for Brad. Is the TPD cover recommended being sourced from super (any occupation TPD) or non-super,OwnOccupationTPD.Isunclear.ThenthereisareferencetotheTPDdefinitionandtheuseoftheword“unlikely”asthoughitweretobepreferred.IassumethatthewriterofthisSOAbelievesthatanAnyOccupationTPDdefinitionwhichusestheword“unlikely”(inpreferencetothewords”unable”) ispreferableandindicatestheavailabilityofsomegreaterlevelofgenerosityinthedecision-makingprocessoftheTPDclaim.InApril2016TAL&MetlifevShuetrimresultedintheNSWAppealCourtdeterminingthatinthecircumstancesofaninsurerdecidingwhethertopayanAnyOccupationTPDsuperclaim,thewords“unlikely”and“unable”heldthesamemeaning.IntheTPDrecommendationsforZarathereisnomentionwhatsoeveroftherapiddrop-offofdefaultcoverdeathandTPDcoverinmostnot-for-profitsuperfunds.IfanindustryfundistoberecommendedtoholddeathandTPDcoverthensurelytheclientmustbewarnedofthestagingofthecoverreductionsthatstartataroundage35,rapidlyescalatingtoage60.Page15Mostnotforprofitsuperfundshavenowinstitutedfeesspecificallyfortheprocessingofrolloversforinsurancepurchasedoutsideofthatparticularsuperfund,aswellas limitingtherolloverstooneperyear.Thosefeesandtheactualpremiumalso involvebuy-sellcharges.Secondlytheso-called“enduringrollover”isnotalwaysavailableandcertainlynotalwaysabletobesetuponautomaticbasis.

19

Page16Thereareseveralerrorsofdefinitionsinthisdocument.InthesectionheadedRisksofmyAdvicethereisareferenceinbulletpoint3toaTPDpolicywhich“leavesyouunabletoworkinyourownoccupation”.Ifthisstatementisnotclarifiedbytheinsertionofthewords“leavesyoutotallyandpermanentlyunabletoworkinyourownoccupationquote”thenitis effectively a description of income protection, not lump sum total and permanent disablement cover. It is extremely important that the clientsunderstandthatTPDofanydefinitionalstructuremustbetotalandpermanentbeforeaclaimisconsidered,andshouldnotbeconfusedwithTotalDisabilityinanincomeprotectioncontract,otherwisetheclientisbeingmisledbytheadvice.ThereisnoreferenceinthisSOAtothequalifyingperiodofeither3or6monthsbeforeaTPDclaimofanytypecanbelodged.Insomecircumstancessuchadelaycouldcauseconsiderablefinancialstress,evenbeforeaclaimhasbeenassessed.InFourthbulletpointthedescriptionsoflifeinsuranceproductsrequirepreciselanguage,astheymaybereliedonbytheclient.OnewouldhaveexpectedmoreprecisionifthisSOAwasauthoredandapprovedinitsfinalformbyspecialistriskadvisers.Page18Inrecommending$1,110,000deathcoverforBrad,theSOAnotesthatthequotes“amountoflifecover(ifinvested)willgenerateenoughtoreplace50%ofwhatyoucurrentlyearn”.Thefirstissuethatshouldbeaddressediswhetherwearewediscussinggrossincomeornetincomeaftertax.Thenextissuethatshouldbeaddressedistheactualpercentageofincomebeingsought.Forsomeyearsithasbeenaconventionamongstriskadvisersthat75%ofnetincomewasafairandaccuraterepresentationofwhatwasneededtoreplacetheincomeoftheprimaryincomeearnerinafamily.Settingthatincomefigureat50%of(?income)Isbelownormalpractice.Itisalsoessentialtoestablishandreiteratehowlongtheincomeistobegeneratedfor.

20

Page19Thefirstsectionheaded“whyitisappropriate”containssevenbulletpoints.Therearepreviouslynotedomissionsinpoint3wherethewords“totalandpermanent“aremissing.Point4isinerror noTPDjudgementinsuperoccurswithoutthesupportingopinionsoftwomedicalspecialists,not“adoctor”.The fifth point regarding terminal illness omits theperiod forwhich terminal illness is required to havebeen certified by two appropriatemedicalspecialists.Thesixthpointmakesaclaimasto“superiordefinitionsprovidedbyMNO”withoutanyjustificationonwhatis,bynecessity,ahardtoproveclaim,particularlywhenaclaimfails.Thispointrequiresclarificationandthat’swhatariskSpecialistwoulddo.ThenextsectionontraumaisconfusingwhenreadinrelationtoothercommentselsewhereintheSOA.Theinterpretationoriginallywasthatthetwoyears’ payments were to provide a ”payment holiday”. This section now talks about “a lump sum mortgage reduction equivalent to 2 years’payments”.Thatstrategywouldhaveimpactonthelevelsofmonthlyrepaymentsunlesstheloanwasre-negotiated,alwaysaprocesswithissues.Thethirdsectiononthispagetalksabout“partialpaymentsforcertainconditions”andqualifiesthatstatementbysaying“otherprovidersoftrauma

coverwillnot”.Withperhapsoneexception,allthequalityretailtraumapoliciesofferaformofpartialpaymentforcertainconditions.Usuallythatprovisionisanextracost,butinsomecasesitiscontainedintheregularpremium.Thisstatementrequiresclarificationandaccuracy.Onpage19thesectionregardingMNOinsuranceonceagainlacksprecisioninthesecondpoint,byfailingtoqualifythelayman’sdescriptionwiththeword“permanently”.Theimportanceofusingafulldescriptionandincludingthewords“totalandpermanent”cannotbeoveremphasised,because

withoutthosetwowordsnoclaimforTPDwilleverbepaid.Asitstandstheclauseismisleadingtheclient.Page20Point5shouldhavecontainedareferencetoaBindingDeathNominationanditsprovenadvantagesoverastandardnomination.Page21ThisSOArecommendsthatZararetainhercoverintheOzindustrysuperannuationfundandgoesontosaythat“itstermsanddefinitionscomparedwelltootherproductsavailableandthecostofcoveralsocomparedwell”.

21

IndustrysuperannuationfundshavetheirinsurancetermsandconditionssettoaminimumlevelbytheSISAct.Inrecenttimesmostindustryfunds,facedwitharapidlyincreasinglevelofTPDclaims,haveattemptedtorestrictthepaceofthoseclaimsbyadding“severity”totheirTPDdefinitions.Itisnowcommon,tofindarequirementfor“rehabilitation”hasbeeninsertedintowhatisarelativelystandardTPDdefinitioninindustryfunds.Inaddition,someindustryfundshavegiventhemselvesanentitlementtospreadoutthepaymentsofaTPDsum,andthereforenotpayitinaonelump

sumofasizesuitableforpayingoutasubstantialcapitaldebtsuchasmortgage.Thememberclientwouldnormallybeexpectingalumpsum,minusthelumpsumtax.It’sprudentthatwhenrecommendingthataclienteither joinsan industryfundfor insurancecover,ortheadviserrecommendstheystaywiththatparticularindustryfundfortheirinsurancecover(andinvestments),thatawarningmustbegiventotheclientthatthereisapotentialforthetrusteeofanyindustryfundtoseektocontainTPDclaimsevenfurtherandtightenupTPDdefinitions,aswellisspreadthepaymentsoveraterm.Thissituationappliestoeitherdefaultcoverorpurchased(underwritten)deathandTPDcover.Thereisnoprovisioninretailinsurancewhichisnon-cancellableandguaranteedrenewablewherebyaninsurancedefinitioninacontractcanbechanged,positivelyornegatively,withouttheexpressapprovalofthepolicyholder.Becausethepolicyowner,inthecaseofindustryfunds,istheTrustee,it isexpectedthatTrusteesmaycontinuetodemonstrateacapacitytochangetheinsuranceruleswithoutmemberconsultation,priortotheevent.

Page23There isadeficiency inthesectionheaded“whatmyadvicedoesnotcover”,withtheadviserhavingexcusedhimself fromincludinganydiscussiononchildinsurancewhenadvisingafamilywith2children.Childdeathcoverandtrauma insurancecanbeattachedtoanynon-superadult life insurance,TPDortraumacover. It is relatively inexpensive. Itspurposeistoprovidefundsforafamilywhohasachildorateenagechildstruckdownwithaseriousillnesssuchascancer.Paediatricandyouthcancers,andsomeformsofneurologicaldisorders,canonlytreatedinthemajorcapitalcities.Itiscommonforparentsofachildstruckdownwithaseriousillness,requiringmanytripstoacapitalcityforinvestigationandtreatment,foroneorbothparentstoseektotakesometimeoffworkandprovidesupporttoeachotherandtotheafflictedchild.Somepeoplehavegenerousemployersbutthegenerosityonlyextendstoacertainextent.SoonerorlatertherewillbeaseriousfinancialimpactonthatfamilyanditbehovesanyriskadvisortohaveatleastaskedthequestionoftheclientsandmakeappropriatenotesonthefilesandintheSOA.Thereisnoevidencethatthathappenedinthiscase.

22

3. RecommendedStructureThefollowingisrecommendedstructure,allowingfor:

• Mandatory,legislativerequirements• Providingallinformationinoneplace-necessaryfortheclienttomakeaninformeddecisionwithouthavingtogoandlookforother

documents.

1. Coverpage a. CalledanSoAb. IndicationoftheSubjectMatter,e.g.AdviceinrelationtoRiskInsurancefor[Client]c. Providerd. ContactdetailsofAuthore. AFSLLicenseef. Whatthisdocumentisaboutg. WhyitshouldbeReadh. Expiry

2. TableofContents3. ScopeofMyAdvice

• Whatmyadvicecovers• WhatmyAdvicedoesn’tcover• NotbasedonIncompleteInformation• MyAdviceisLimited• TaxAdvice• ExpiryofAdvice 30days

4. DetailsoftheClient5. Whatyouwant–

a. PrioritisedNeedsoftheClient,b. FeaturesandBenefitsrequiredofasolution

6. StrategicRecommendations,including*Takeoutthesetypesofcoverandtheselevelsofcover*Have12monthlyreviews ongoingService*Covershouldbein/outofSuper

• InsideandoutsideSuper

23

• Covershouldbeownedby….7. UseofInsurances

• $10,000forafuneral,• $200,000towardspayingoffthemortgage• $50,000fortheeducationofchildren• Providesasourceofincomeof$xpermonth,

8. ProductRecommendationsa. Specific:InsureDeathviasayAIA,TPDviaMLC,etc.b. HowProductswereSelected,includingwhatproductsolutionswereconsidered

i. Genericii. Specificiii. LevelVsStepped

9. WhatwasConsidereda. MaintainingCurrentandAddingtoitb. WhatProductsmighthaveSuited

10. ConsequencesofmyAdvicea. ‘Self-insuring’b. Maintainingcurrentcoverandaddingtoitc. CompanyaVscompaniesb,c,d,e,etc.

i. Premiumsacrossthe‘lifetime’ofthecontractii. FeaturesandBenefitsagainstthosetheclient/sneed

d. Fulldetailsofthissolution/si. InoroutofSuperii. FandBratings seeAppendixiii. Premiumsoverthe‘lifetime’iv. Whytheadviceisappropriatev. ConsequencesofReplacementvi. Benefitslostvii. Benefitsgained

11. AdditionalConsequences12. Risks13. AdvantagesandBenefits14. WhymyAdviceisAppropriate

24

15. Whatelseyouneedtoknowa. WhatmyAdvicecoversb. WhatmyAdvicedoesn’tcoverc. MyAdviceisLimitedd. Feese. Commissionsf. ContinuingReviewServiceg. CoolingOffPeriodh. YourPrivacy

16. AdviserDeclarationa. NoproductAssociationsof

• Adviser• AFSL

b. NootherBenefitsc. FeesandCommissionshavenobearingonAdvice

17. StepstoimplementRecommendations18. AuthoritytoProceed(ClientSignoff)

a. Affordabilityb. Variationsc. AcceptAdvice AuthoritytoProceedd. etc.

19. AppendicesThisareashouldgenerallyholdthedetailedfactualinformationthatsupportstherecommendations,i.e.

• FandBcomparisons• LifetimePremiumComparison ExistingVsProposed• Quotes• PDSs• ReiterationoftheFactFinddata datauponwhichtheSoAisbased.

25

Toenhancecomprehensionandreadability:• Objectiveinformationshouldbeintablebasedbulletform notfullsentences• ThereshouldonlybeoneplacewhereAdviceisprovided• General/strategicrecommendationsshouldbemadewellbeforeanyProductrecommendation,e.g.

o Whattypesofcoveredisneededo Howmuchcoverisappropriateo HowaWillandnominationofBeneficiariesshouldbeputinplace

• ReferencestocoverontheClientandPartnermustbecorrecto DeathcoverontheClientisnotforthebenefitoftheClient,itisforthebenefitoftheownersofthepolicy

• Informationshouldbepresentedinalogicalfashion eachcomponentattherighttime• TheIndexshouldbeonapageonitsown.• Eachsectionshouldstartonanewpage• Thefontshouldbenomorethan11pt• TheuseofBoldandItalicsshouldbeminimised onlyusedtoemphasisesmallimportantsegmentsofthetext• Thereshouldalwaysbeasmuch‘whitespace’aspossibleonapage.

26

4. AlternativeSampleThefollowingshowsanalternativestructure,acompromiseastowhatlegislatorswouldlikeVswhatadviserswouldpreferandwhatclientsreallyneedtomakeaninformeddecision.Pleasenotethatthetextwouldnotnecessarilybeasdefined.Thatwouldbethesubjectofafurtheranalysis.

Page1of33

LimitedScopeStatementofAdvicerelativetoPersonalandFamilyRisk

PreparedbySallyChong

ForBradandZaraBlack

31March2017

PreparedbySallyChomgPhone: (03)92803200Email: schong@planforit.com.auAddress: 12MonetStreetMelbourneVIC3000

Authorisedrepresentativeno.45678ofPlanforitPtyLtdwww.planforit.com.auAustralianfinancialserviceslicenceno.456789ABN: 12345678901

WhatthisDocumentisAboutItiscalledaStatementofAdvice(SOA),whichIamrequiredtoprovidetoyouundertheCorporationsAct2001.WhythisdocumentshouldbeRead:ThisStatementofAdvice(“SoA”)containsinformationtohelpyoumakeaconfidentandinformeddecisionregardingtheadvicewehavegiveninrelationtoyourPersonalRiskinsurance.Ifyoudon’tfeelconfidentinmakingthatdecisionorbelieveyoudon’thaveenoughinformationthenyoushouldnotproceed.Instead,contactmeandIwillassistwhereIcan.Note:Iamrequiredbylawtoactinyourbestinterestswhenprovidingyouwithfinancialadvice.ExpiryTheinformationcontainedinthisdocumentexpires30daysfromthedateitwasprepared.

Page2of33

TABLEOFCONTENTS Page1. ScopeofmyAdvice 2. YourDetails 3. WhatyouWant 4. StrategicRecommendations 5. UseofInsurances 6. ProductRecommendations 7. WhatwasConsidered 8. ConsequencesofmyAdvice 9. AdditionalConsequences 10. Risks 11. AdvantagesandBenefits 12. WhymyAdviceisAppropriate 13. Whatelseyouneedtoknow 14. AdviserDeclaration 15. StepstoImplementRecommendation AuthoritytoProceed Appendix1 FeaturesandBenefitsComparison Appendix2 LifetimePremiumsComparison Appendix3Quotes Appendix4 ProductDisclosureStatements Appendix5 FactsUponWhichthisSoAisBased

Page3of33

1. SCOPEOFMYADVICEWhatmyadvicecoversAsagreed,Iamprovidingafullreviewofyourpersonalinsuranceneedstoensureyourfamilyhasadequatefinancialsupportintheeventofdeath,disabilityorillness.Specifically,myadviceaimsto:

• ensureyouarefullyprotectedintheeventofprematuredeath,disablement,seriousillnessorinjuryasdetailedinthe‘Whatyouwant’sectionabove

• recommendappropriatetypesofinsurance• recommendhowtopayfortheinsurancepremiums• recommendsuperannuationcontributionstrategiestooffsettheeffectofinsurancepremiums

onyourretirementbenefits• informyouoftheimpactofthesearrangementsonyourcashflowandyoursuperannuation

benefits• recommendthatyoumakeappropriatedeathbenefitnominationssoyoursuperannuation

assetsandinsurancecoverarepassedoninaccordancewithyourwishesandneeds.

WhatmyadvicedoesnotcoverMyadviceislimitedtotheabove,anddoesnotcover:

• anyotheraspectofyourfinancialaffairs(includingchildinsurance)• thesuitabilityofyourexistingsuperannuationarrangements• whetheryouwillhaveenoughsuperannuationforyourretirement• Icangiveadviceabouttheseifyouwantit,foranadditionalcost

Ø Iamnotataxadviserandcanonlygiveyoulimitedadviceabouttax.

MyadviceislimitedIamabletorecommendproductsfromthePlanforitapprovedproductlist(APL)andproductsthatarenotontheAPL.IfIrecommendaproductthatisnotonthePlanforitAPL,ImustseekapprovalfromPlanforit.

• ThePlanforitAPLisputtogetherbyaPlanforitresearchteamandisregularlyreviewed.Askmeforacopyofthelist,ifyouareinterested.

• WhenIpreparedyouradvice,Ilookedonlyatproductsonthatlistandatyourexistingproducts.• Ididnotlookatotherproductsavailableonthemarket.• Myadviceexpireson30April2017.• Youshouldnotrelyonmyadviceafterthattime,ifyouhaven’tactedonitbythen.

NotbasedonIncompleteInformationTheadviceisbasedontheinformationyouprovidedindiscussionsandintheClientQuestionnaire.Appropriate advice can only be based on complete information and by providing limited information orchoosing toutiliseproductsother than those recommended, you riskmakinga commitment toproductsthatmaybeinappropriatetoyourneeds

MyAdviceisFirst Mutual maintains an approved product list (APL). This means when preparing this SoA I may onlyrecommend products on the APL. The APL is approved by First Mutual’s compliance and investmentcommitteeandsourcesmostofitsresearchfromexternalresearchfirms.

TaxAdviceIamnotaregisteredtax(financial)adviserunderthecurrentAustralianlaw;andIfyouintendtorelyontheadvice tosatisfy liabilities or obligationsor claimentitlements that arise,or could arise, under a taxationlaw,youshouldrequestadvicefromaregisteredtaxagentoraregisteredtax(financial)adviser.”

Page7of33

4. STRATEGICRECOMMENDATIONS YourPriority Recommended

Priority

IrecommendthatBrad

1. HaveLifeCoverof$1,500,000sothatthereiso $10,000towardsafuneralo $190,000fortheeducationof[Dependent1]o $500,000topayoffthemortgageo $800,000toassistZaratoreplaceBrad’dincome

(generating$32,000ifitwasabletobeinvestedat4%

1

2. HaveTPDcoverof$500,000topayofftheMortgage 23. Replacehislifeandtotalandpermanentdisability(TPD)

insurance,soastoreducethelevelofpremiums 3

4. Retainhisincomeprotectioninsuranceandtakeouttraumainsurance

1

5. TakeouttheLifeandTPDwith[ProductProviderA] 16. HavetheLifeCoverandTPDownedasJointTenantsoutside

Super 1

7. HavetheIncomeProtectionownedbyhisSuperannuationfund 1

IrecommendthatZara

8. increasetheamountofcoverunderherlifeandTPDinsuranceto$500,000,and

1

9. takeouttraumainsurance. 2

Ialsorecommendthat

10. YouensurethatyoueachhaveenduringNominationofBeneficiaryforyoursuperfunds,asthisimpactspaymentofbenefitsunderSuperannuation

1

11. Youhave(atleast)anAnnualReviewofyoursituation. 112. Irecommendthatyounominateeachotherasbeneficiarieson

yourrespectivesuperannuationaccountsandlifeinsurancepolicies.

1

ThetableslaterprovideasummaryoftheproductsIrecommendonBradandZara.

Page13of33

8. WHATWASCONSIDERED?MaintaingCurrentandObtainingTopUp

Ananslysiswasdonetoseehowyourcurrentpolicies/covercouldbe‘toppedup’

Itwasdeterminedthatthiswouldnotbeappropriateasyouindicated:• Youwantedtoreducepremiums• YouwantedInsuranceinsideSuper• [Other]

WhatProductsmighthaveSuited

ArangeofProductswasconsidered,andthenashortlistwasexamined.Productsontheshortlistwere:• A• B• C

Theproductsfinallyrecommendedwereselectedbecauseof:• FeaturesandBenefitsthatbestmetyourneeds• Premiums• [Other]

Page18of33

13. WHYMYADVICEAPPROPRIATEANDINYOURBESTINTERESTS

BradandZara,IhaverecommendedthatyouobtainhigherlevelsoflifeandTPDcoverandthatyouobtaintraumacover.Ensuringthatyouhavetherighttypesandlevelsofinsuranceisimportantforyoubothbecauseoftherolesyouplayinthefamily.Brad,yourfamilyreliesonyourincometomeetthemajorityofexpenses.Zara,youhavesignificantcarerresponsibilities.

TheamountsIhaverecommendedtakeintoaccountyourincome,yourcoverunderyourexistingsuperannuation,yourcurrentassetsincludingsavings,investments,andsuperannuationbalances,andthecostofhiringhelptoreplacetheworkcarriedoutbyZara.

Myadvicewillleaveyouinabetterpositionbecauseintheeventofdeath,accidentorillnessyourfamilywillhaveadequateprotectionthatyoucanafford.Yourinsurancewillbefundedthroughacombinationofyoursurpluscashflowandsuperannuation,notonlytoensurethatyoumeetyourgoalofreducingyourmortgage,butalsotoaccountfortheimpactofpremiumsonyoursuperannuationbalances.Asaresultofmyadvice,Zara’ssuperannuationbalancewillalsobenefitfromaGovernmentco-contribution.

Page25of33

15. ADVISERDECLARATIONDeclaration

AsyouradviserIdeclarethat:• The information contained in the Fact Find is an accurate and complete record of the information

obtained from the customer(s). • The information contained in the Statement of Advice is an accurate and complete record of the

advice and recommendations that I gave to the customer(s). • I have only provided advice on products on which I am authorised to advise. • Unless disclosed in this document, these products were appropriate for the identified needs and

objectives of my customer. • I have provided the client with a copy of:

o The current Product Disclosure Statement for each product selected by the customer(s). o The Financial Services Guide.

• Xxxx• IhavenoassociationswithProductProviders• PlanforithasnoassociationwithProductProviders• Idonotreceiveanyotherbenefitsotherthanthatdescribedabove• FeesandCommissionshavehadnobearinginmemakingtheproductrecommendations• In all cases my primary concern is for the financial well-being of my clients.

Signed…………………………………………………………..[Adviser]Date:....../ /20

Page28of33

APPENDICESAppendix1–FeaturesandBenefitsComparisonAppendix2–‘Lifetime’PremiumComparisonAppendix3–QuotesAppendix4–PDSsAppendix4–FactsUsed

Page29of33

APPENDIX1–FEATURESANDBENEFITSCOMPARISON

ThefollowingshowsacomparisonoftheFeaturesandBenefitsofthe• currentinsurance

• whatyouhavesaidyouneed

• thenewinsurance.

Itshowsthat:• Thenewinsurancealignsmoretowhatyouneed

• Thecurrentinsuranceisquitedeficient

Page30of33

APPENDIX2–‘LIFETIME’PREMIUMCOMPARISON

Thefollowingshowsthepremiumsacrossa‘Lifetime’usingLevelandSteppedpremiumsforthecurrentinsuranceandthenewinsurance.

Itshowsthat:• Steppedbecomesextremelyexpensivelateron

• Thecurrentinsuranceismoreexpensivethattheaqlternative(new).

Page31of33

APPENDIX3–QUOTES

Page32of33

APPENDIX4–PDSS

[PDSsforthespecificproductversionsthathavebeenrecommended i.e.notthefullPDSsthatcurrentlyshowarangeofproducts.]

Page33of33

APPENDIX5–FACTSUPONWHICHTHISSOAISBASED

[MaterialnformationextractedfromtheFactFindandrepeatedheresotheclientcanseethebasisfortheadviceandnothavetorefertootherdocuments]