How to Document Reasonable Basis for Advice in an SoA

Having a reasonable basis for advice is a fundamental requirement of the best interests duty. But the obligation doesn't end there - the SoA must also document that basis in a way that makes it visible to a reviewer. Advice that was genuinely reasonable but poorly documented looks, from the outside, exactly the same as advice that wasn't reasonable at all.

This article explains what reasonable basis means in legal terms, what good documentation looks like in practice, and the documentation gaps most commonly identified in compliance reviews.

The Legal Framework: What Reasonable Basis Requires

The reasonable basis requirement comes from two overlapping obligations in the Corporations Act 2001:

Section 961B requires that the advice be in the client's best interests. An adviser satisfies this by meeting all seven safe harbour steps, which include identifying the client's relevant circumstances, conducting a reasonable investigation, and basing the advice on the client's relevant circumstances.

Section 961G requires that the advice be appropriate to the client. An adviser satisfies this by having reasonable grounds to believe, at the time the advice is given, that it is appropriate to the client having regard to the client's relevant circumstances.

Taken together, these provisions require the adviser to: (1) actually understand the client's circumstances, (2) conduct a genuine analytical process, and (3) arrive at a recommendation that is grounded in that analysis. The SoA must evidence all three.

What Good Documentation of Reasonable Basis Looks Like

Effective documentation of reasonable basis has four elements that should appear in every SoA.

1. A clear statement of the client's objectives, financial situation and needs

This section should be specific to the individual client, not generic. It should include not just what the client wants (objectives) but what they need - including needs they may not have explicitly articulated. Where clients have competing objectives or limited capacity to achieve all their goals, that tension should be acknowledged.

2. A summary of what was investigated and considered

The SoA doesn't need to reproduce the full research or analysis process, but it should indicate what alternatives were considered and why the recommended approach was preferred. This is particularly important for product recommendations, where the selection rationale should be visible.

3. An explicit link between client circumstances and the recommendation

The SoA should draw a clear line between the client's specific circumstances (as documented in the needs section) and each major element of the recommendation. Reviewers should not have to infer this connection - it should be stated.

4. Separate confirmation of appropriateness

Best interests and appropriateness are separate legal obligations. Even if the SoA addresses best interests comprehensively, it should also include a separate statement addressing appropriateness - specifically, why the advice is appropriate to the client's personal circumstances, risk tolerance, and financial capacity.

Common Documentation Failures

These are the documentation gaps most frequently identified in SoA compliance reviews:

• Generic objectives: goal statements that could apply to any client ("to grow wealth over time", "to protect my family") without specifics that connect to the actual recommendation

• Missing investigation summary: the SoA states what was recommended but not what alternatives were considered or why they were rejected

• Unexplained connections: the SoA describes the client's circumstances and separately describes the recommendation, but does not explicitly connect the two

• Conflated duties: a single statement that the advice is "in the client's best interests and appropriate" without separately addressing both obligations

• Template-driven basis sections: the basis for advice reads identically across multiple SoAs because it is drawn from a firm template without adequate customisation for the individual client

A Practical Test for Your SoA's Basis for Advice Section

Before finalising an SoA, apply this test to the basis for advice section:

• Could this basis for advice section apply, without change, to another client at this firm? If yes, it is not sufficiently client-specific.

• Does the section explain why this recommendation, rather than an alternative? If not, the investigation step is not documented.

• Is the connection between the client's circumstances and each recommendation element stated explicitly? If the connection requires inference, it should be made explicit.

• Does the section address appropriateness separately from best interests? If both are addressed in a single sentence, they need to be expanded.

Are your SoAs showing their working?

RegiReview reviews the basis for advice section of your SoAs against the s961B and s961G framework - checking whether the analysis is specific, connected, and compliant. If your documentation gaps are identified now, you can fix them before ASIC identifies them in a surveillance review.

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