There can be some confusion about when and how a new SOA may need to be prepared. Some advisers rely on a record of advice when a new SOA is actually required. The most common situation in which this occurs is where a previous SOA has been prepared, and advisers do not realise the need for a new SOA.
RG 175.150 (interpreting the Corporations Act 2001 (Cth)) does allow for certain situations where a new SOA is not required. To summarise, a new SOA is not required if and when:
- A previous SOA was prepared;
- There is no significant change in the client’s ‘relevant circumstances’ (with the client’s objectives, financial situation and needs being listed as relevant circumstances; and
- The basis for the advice has not changed.
This does leave some things to the adviser’s judgment. In particular, there is some point at which a change in a client’s circumstance moves from being non-significant to being significant. There is no hard and fast rule about where this point lies – and, in particular, it will vary with the client. So, for some clients a change will be significant but for others the same change may not be significant.
For example, a client aged 64 and a half being made redundant may not be a significant change, especially in situations where that client had plans to retire on their 65th birthday. The further advice for the client might constitute little more than a tweak to a cash flow and other financial management plan. But a 34 year old client being made redundant will have very different ramifications for that client and will almost certainly be a significant change.
When exercising judgement, keep one simple proposition in mind: clients will never complain about you being too thorough, and it is hard to find yourself being sued for being too cautious. So, when it comes to preparing a new SOA after a change in a client’s circumstances, keep this simple idea in mind: if in doubt, do. You are far less likely to run into trouble for preparing an additional SOA than you are for not preparing that SOA.