“History is not the past but a map of the past, drawn from a particular point of view, to be useful to the modern traveller.” — Henry Glassie, ASIC Commissioner?
Can I ask you a personal question?
How long is too long?
From an advice perspective, how long can you rely on a Statement of Advice to support your ongoing advice?
To put it another way, how old and dated must an SOA be before you’ll stop using Records of Advice to streamline your advice process.
At what point must an adviser refresh a Statement of Advice?
When does it become imprudent to continue to use records of Advice?
If you ask your Compliance People, the standard response you’re likely to receive (if you receive one at all) is that there is no definitive answer, and it’s a matter for your professional judgement.
This may be true, but it’s hardly useful. As guidance, it’s as helpful as being told that you can rely on the SoA until there’s a significant difference between the current situation (circumstances and basis of advice) and the historic situation recorded in the Statement of Advice.
We’ve addressed Records of Advice previously (and offered a useful checklist) but, before we address the practical issues, let’s remember that a Record of Advice is a regulated document designed to facilitate the streamlined provision of incremental, consistent and subsequent advice. It’s particularly useful for the provision of ongoing advice and reg 7.7.10AE confirms that an ROA can be used (instead of an SOA) if:
- You have previously provided your client with a Statement of Advice recording the client’s relevant circumstances and your advice (the ‘previous advice’)
- The client’s “relevant circumstances” (objectives, financial situation and needs) are not significantly different from those recorded in the previous advice, and
- The basis of the subsequent advice is given is not significantly different from the basis of the previous advice.
In practice, you can use ROA to streamline your ongoing advice process if you’ve previously provided an SOA to a client and neither their ‘relevant circumstances’, nor the basis of your advice, are significantly different from those recorded in the SOA on which you’re relying. The previous advice, the SoA (or multiple SOAs) is the foundation that supports the ongoing advice and, unless there are significant changes, you can use Records of Advice instead of giving new Statements of Advice.
In theory, this is a significant benefit for advisers; although, because of Licensee conservatism, some Records of Advice are as long and incomprehensible as the Statements of Advice they replace. For some advisers, it’s often faster and less problematic to simply produce SOA for ongoing advice.
Assuming you’re not still detained in Institutional Advice Land, the Record of Advice is a game-changer, but one with its own particular rules.
Significant differences
“A good financial plan is a road map that shows us exactly how the choices we make today will affect our future.” — Alexa Von Tobel
One of the most common questions we receive is, “can I use ROAs on the back of a X year-old SoA?”
This question often arises after advisers depart their previous AFSL, or when newly minted Licensees try to understand the formal requirements and align these to their own risk appetite.
Some larger AFSLs have internal standards that provide definitive, and immutable, requirements defined by their own risk governance and appetite. They may, for example, state that their representatives are unable to rely on a SoA which is more than 5 years old.
This is a clear position, but it does not reflect the law or the intent of the regulations.
Even if you recognise that their position reflects the “nature, scale and complexity” of their business, it’s important to understand that their risk appetite will change from time to time, and so may their position on Records of Advice.
It’s tempting to assume these changes are the result of either capriciousness, conservatism or mismanagement, but Licensee requirements can, and do, change for many reasons, including:
- Professional Indemnity guidance
- Legislative requirements, guidance and changes
- Incident/Breaches learnings; or
- Complaints learnings.
ASIC’s position
“Yes, no, maybe
I don’t know
Can you repeat the question?” — Head of Professional Standards (or They Might Be Giants)
In the past, ASIC’s pronouncements were positively Delphic and their Regulatory Guides were regularly condemned by some commentators for their ambiguity and equivocation.
This criticism, in our view, is neither fair nor reasonable.
It is not, and should not be, ASIC’s role to advise Licensees on how to comply with the law. Licensees have management teams, lawyers, compliance and risk teams to assist them but, for many Licensees, the complexity of the Corporations Act (and other applicable laws) creates conservatism, confusion and indecision.
While there’s a longer term plan to review and revise Chapter 7, ASIC has stepped up to assist Licensees and advisers. While ASIC is unlikely to be thanked for its contribution, we’re confident that ASIC’s information sheets will help advisers and Licensees manage ambiguity and better understand ASIC’s interpretation, viewpoint and expectations.
Specifically, Info Sheet 266 provides the clarity advisers need.
Info Sheet 266, released in November 2021, clarifies the obligations that apply when providing further advice to retail clients.
We recommend the FAQ section to your attention but, before we get too far down the rabbit hole, let’s return to the original question: Can I use ROAs on the back of a X year-old SoA?”
As unsatisfying as you may find our answer, we can only advise you that “maybe, it depends”.
We’re not reluctant to declare a position but, because there is no regulatory requirement, the correct answer depends on the specific circumstances of your client and your advice. Quite apart from suggesting that each client differs, there are many factors that need to be considered before assuming (or presuming) that you can use a ROA and rely on your previous advice. For example, you need to consider:
- Have the clients relevant circumstances changed significantly?
- Has the basis of the advice changed significantly?
The difficulty of these requirements is that “significance” is both an objective and subjective consideration. The benefit of these requirements is that you are best placed to assess “significance” based on your knowledge of, and relationship with, your clients. It’s also a contextual determination. For example, an additional investment of $100,000 might be significant for some clients but insignificant for others.
So, subject to your Licensee’s position, you can make this determination on the basis of an objective assessment, leveraging your judgment, education and experience. The key is to consider these questions inline with the advice you are about to provide. For example;
Ms Coolidge has been your client for 4 years. You provided her with a Statement of Advice when her career was taking off. At that time she was single, had no dependents but was saving for the purchase of her first home. You’ve met with her annually, adjusting the savings plan to suit her needs and each year you provided her with an ROA to increase her savings. While none of those changes were significant, she’s now
- Increased her salary significantly
- Partnered-up
- Purchased a house; and
- Expecting a child
Whist the significant increase in the salary has been gradual, that by itself may not trigger the significance test on the annual review. However, you might (and probably should) consider that the changes in Ms Coolidge’s relevant personal circumstances are too significant for the previous advice to still be sufficiently appropriate to satisfy your 961B and 961G obligations. The previous advice may be generally appropriate, but this is insufficient and clearly inadequate given the material changes to her circumstances including;
- Savings contributions,
- Mortgage repayments
- Debt reduction,
- Superannuation,
- Child costs; and
- Insurance needs
This example may be a “no-brainer”, it does demonstrate how almost imperceptible changes can, over time, trigger the need to reconsider the clients needs and financial goals. Advice doesn’t have a “use-by date” that, on expiry, triggers the need for a new Statement of Advice. Instead, it’s a matter of context and an objective and subjective assessment of appropriateness. Consider the following example:
Your ongoing client, Mr Wilson, is in pension phase and has been for over 6 years. You meet with him annually, review his investment strategy, the minimum pension amounts and his cash funding requirements. You were happy using a ROA but standard industry practice is to issue a new SOA after 5 years.
In this example, there’s probably no regulatory requirement to issue a new SOA. There is no significant change to his circumstances or the original basis of advice where you recommended he move from accumulation to pension phase. His circumstances haven’t changed and there’s no compelling need to make any changes to his products or strategy.
Mandating expiry dates
This complexity is perhaps the reason some AFSLs put an expiry date (for want of a better word) on the validity of a Statement of Advice.
To be clear, we’re not advocating for expiration dates on SoAs (they’re already too long and disengaging) but we are urging you to actively exercise your professional judgment instead of relying on habitual responses or pavlovian conditioning.
However, mandating expiry dates is a common response to these issues. Although it’s not required, are there circumstances where a SOA expiration of 5 years may be helpful?
While the relevant law does not specify a time limit, laws and regulatory expectations do change over time, and these external factors may compromise the value of the previous advice.
If you consider what’s happened over over the last 10 years, you’ll understand the tension. July 1, 2013 saw Best Interest Duty come into effect, along with the Future of Financial Advice amendments to the Corporations Act and these changes mean that advice, produced prior to 2013, will be significantly different to advice you’d produce today.
With this in mind, you might reach the conclusion that 9 years is too long.
Reviews and record keeping
We’ve repeatedly warned you not to rely on assumptions or presumptions when determining whether you can use ROA. Too often we review a ROA that, despite the adviser’s confidence, contains advice that is materially different to the original advice or reflects client circumstances that are significantly, and obviously, different from the original advice.
It is not enough that you provided an SOA previously, the subsequent advice must be materially consistent with that advice. If their circumstances have materially changed, or you want to introduce a new strategy or address new needs and objectives, you need to give a new SOA. Likewise, if you can’t locate or produce the previous advice, then you’ll need to give a Statement of Advice and use that new document to support future ROAs.
This is an important point for you understand. Although an ROA is a defined regulated document, it needs to be considered in conjunction with the previous advice on which it relies.
When we review files, we do not review the ROA in isolation but consider it in context of the entire client file, including the original advice document and all the supporting information. ASIC have confirmed in Info Sheet 266 they take a similar approach.
What does this mean beyond taking additional care to ensure consistency?
In our view, this may create a requirement to retain the original advice document in which the RoA relies, even if there are more than 7 years between the SOA and the ROA.
As advice professionals, ASIC acknowledge the critical role in determining significance and deciding when, and under what circumstances, you use Records of Advice. We recommend that you exercise your professional judgment and base your decision, and your approach, on your answers to the following question:
- How long is too long for your risk appetite?
- Do your staff/representatives clearly understand the obligations?
- Do your record keeping guidelines include retaining advice documents for RoA purposes?
Further Reading
Frequently Asked Questions
There is no prescribed expiry date for a Statement of Advice. An adviser may continue relying on earlier advice when the client’s relevant circumstances and the basis of the subsequent advice are not significantly different.
The age of the SOA is relevant, but it is not decisive. Client circumstances, strategies, products, laws and regulatory expectations may change gradually until the earlier advice no longer provides an adequate foundation.
The adviser should assess and document whether the earlier advice remains relevant each time further advice is provided. A new SOA is required when the conditions for using a Record of Advice are no longer satisfied.
A Record of Advice may generally be used where the client has previously received an SOA, the client’s relevant circumstances are not significantly different and the basis of the further advice is not significantly different from the earlier advice.
The ROA is intended to facilitate incremental or consistent further advice. It should not be used to introduce materially different strategies, address substantially changed objectives or avoid preparing a new SOA when the earlier advice is no longer relevant.
The adviser must also comply with the licensee’s requirements. A licensee may impose more conservative conditions than the legislation requires as part of its risk-management framework.
Significance depends on the client and the advice being provided. Relevant changes may include marriage or separation, retirement, a substantial change in income or assets, buying a home, increased debt, having children, changed insurance needs or new financial objectives.
A change does not need to be dramatic or occur all at once. Several smaller changes may accumulate until the circumstances recorded in the earlier SOA no longer provide an accurate basis for further advice.
The adviser should consider whether the earlier advice remains appropriate when assessed against the client’s current circumstances. The decision should be based on evidence rather than assumptions or the passage of time alone.
Yes. An AFSL may adopt an internal rule requiring advisers to provide a new SOA after a specified period, such as five years, even though the legislation does not impose that expiry period.
A fixed period can create consistency and reduce the risk of advisers relying on outdated information. However, it should not replace professional judgement. A new SOA may be required much sooner if the client’s circumstances or the basis of the advice changes significantly.
Conversely, an older SOA may remain capable of supporting an ROA where the relevant conditions continue to be satisfied. The legal test focuses on significant differences, while the fixed period reflects the licensee’s risk appetite.
The original SOA should remain accessible for as long as subsequent Records of Advice rely on it. An ROA cannot be properly assessed in isolation because its validity depends on the client circumstances and advice recorded in the earlier document.
This may require retaining the original SOA beyond an otherwise applicable minimum record-retention period. Deleting it while continuing to rely on it could prevent the adviser or licensee from demonstrating that the conditions for using an ROA were satisfied.
The client file should contain the original advice, relevant fact-finding material, subsequent ROAs and evidence of the adviser’s assessment of any changes in the client’s circumstances or the basis of advice.
