What Client Circumstances Must Be Documented in an SoA?

Client circumstances are the foundation of every compliant SoA. They are what connects who the client is to what you recommended - and without them documented properly, the best interests analysis has nothing to rest on.

The Corporations Act doesn't just require you to make good recommendations. It requires you to demonstrate that those recommendations were made in the context of a genuine, thorough understanding of the client's situation. That demonstration lives in the SoA.

This article explains what client circumstances must be documented, what adequate documentation looks like in practice, and where advisers most commonly fall short.

What the Law Requires

Section 961B(2) of the Corporations Act sets out the safe harbour steps for satisfying the best interests duty. Two of those steps deal directly with client circumstances:

• s961B(2)(a): identify the objectives, financial situation and needs of the client that are relevant to the advice

• s961B(2)(d): where it is reasonable to do so, make reasonable inquiries to obtain complete and accurate information about those matters

Together, these steps mean the adviser must not only document what the client told them, but also probe further where gaps exist. The SoA must reflect both the information gathered and the process by which it was gathered.

A third provision, s961H, creates an additional obligation: where the advice is based on incomplete or inaccurate information, the adviser must warn the client that the advice may not be appropriate. This warning must appear in the SoA.

Goals and Objectives

Goals are one of the most scrutinised parts of any SoA - and one of the places where SoAs are most frequently found inadequate.

The problem is almost always the same: goals are recorded in generic, template-style language that could apply to any client. Statements like "to grow wealth", "to plan for retirement", or "to achieve financial security" are not adequate. They tell a reviewer nothing about this client's specific situation, timeframe, or priorities.

Adequate goal documentation is:

• Specific: "to accumulate $1.2 million in superannuation by age 62 to support a desired retirement income of $80,000 per year"

• Timebound: "to repay the mortgage within 10 years and become debt-free before retirement"

• Connected to the advice: the goals documented should be the goals the recommendations actually address

A practical test: could these goals, as written, be pasted into a different client's SoA without anyone noticing? If yes, they are not specific enough.

Financial Situation

The SoA must capture a complete picture of the client's financial situation relevant to the advice. What "complete" means depends on the scope of advice, but for most personal advice engagements it should address:

• Income: current income sources, amounts, and any known future changes (e.g. expected reduction on retirement, parental leave)

• Assets: superannuation balances, investment portfolio values, property, business interests

• Liabilities: mortgage balances, other debts, repayment schedules

• Expenditure: relevant ongoing expenses where they affect the client's capacity to implement the advice

• Insurance: existing cover types and amounts

• Tax position: particularly relevant for investment, super contribution or estate planning advice

Not every engagement requires every item. Scaled advice for a narrow question may only require the subset of financial information directly relevant to that advice. But where information is not captured, the SoA should acknowledge the limited scope - and include the s961H warning where the missing information could affect appropriateness.

Risk Profile

Risk profile documentation is another area where failures are often identified. The most common pattern: an adviser uses a risk profiling questionnaire to produce a risk category (e.g. "Balanced") and inserts that category into the SoA - with no further explanation.

A risk category alone is not sufficient. The SoA should show:

• The basis for the risk assessment - how the profile was determined, not just the outcome

• Attitude to risk: subjective - how the client feels about potential loss and volatility

• Capacity for risk: objective - what level of loss the client could actually absorb given their financial situation

• Consistency between the risk profile and the recommendations - and an explanation where they diverge

Where a client's attitude to risk and their capacity for risk diverge - for example, a client who is emotionally tolerant of volatility but financially could not sustain a significant loss - that tension must be addressed and explained in the SoA, not papered over with a single risk category label.

The Reasonable Inquiries Obligation

Section 961B(2)(d) requires advisers to make reasonable inquiries to obtain complete and accurate information about the client's circumstances. The word "reasonable" does not mean minimal - it means proportionate to the advice being given.

Where a client provides incomplete information, the adviser cannot simply proceed on what they have been told. They must follow up on obvious gaps. If those gaps cannot be filled, the advice must be scoped accordingly, and the s961H warning must be included.

The difference between documenting a conclusion and demonstrating an inquiry process matters enormously on review:

❌ Inadequate: "Client confirmed they have no other assets or liabilities."   ✅ Adequate: "Client advised they have no investment assets outside of superannuation. We queried whether the client holds any insurance, has any personal or business debts, or expects to receive any inheritance or other windfall. Client confirmed none of these apply."

The second version demonstrates the inquiry process. The first simply records a conclusion.

The Five Failures Most Often Found

In our time undertaking adviser review as Independent Experts for ASIC, client circumstance documentation consistently identifies the same limitations. If you are reviewing your own SoA template or file review process, check for all of these.

1. Generic goal statements

Vague goals that could apply to any client. "To grow wealth" is a placeholder, not a documented goal. ASIC expects specificity about what the client actually wants to achieve and by when.

2. Incomplete financial profile

Where information relevant to the advice has not been recorded and no scope limitation or s961H warning appears in the SoA. Advisers cannot assume information is irrelevant; they must make reasonable inquiry and document what they found - and what they did not find.

3. Risk profile not connected to recommendations

A risk category stated without explanation, or an inconsistency between the stated risk profile and the recommended strategy that is not addressed in the document. If you have categorised a client as Conservative but recommended a growth portfolio, that gap must be explained - not left for the reviewer to question.

4. Reliance on verbal conversations

The SoA - or file notes referenced in the SoA - must record what the client actually said. Noting that "discussions were had with the client" is not sufficient. The substance of those discussions must be captured.

5. Missing s961H warning

Where advice is given despite the adviser knowing that information is incomplete or inaccurate, the warning must be included in the SoA. Omitting it when it is required is a distinct compliance failure - separate from the underlying gap in the client information.

The SoA Must Stand Alone

Advisers sometimes treat the client fact-find as a separate document and assume the SoA can reference it without repeating it. That approach has limits. The SoA must be able to stand alone as the record of the advice given and the basis on which it was given.

Where a separate fact-find exists, the SoA should summarise the relevant circumstances clearly enough that a reviewer reading only the SoA can understand who this client is, what they needed, and why the advice was appropriate for them. If a reviewer has to go hunting through supporting documents to piece together the client's situation, the SoA is not doing its job.

Are your client circumstances documented to ASIC's standard?

RegiReview analyses SoA documents against the best interests safe harbour requirements and identifies where client circumstance documentation falls short - before a licensee audit or ASIC review does.

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