RG 175 states that an SoA does not need to be given in the case of further advice. In scenarios where the advice is on the same basis as the original SoA and the client’s circumstances have not significantly changed, a further advice RoA may be prepared.
It is however not always appropriate to prepare an RoA, even when the advice is consistent with the initial advice provided. There are certain situations in which an SoA should be prepared to record the advice provided despite the unchanging basis of the advice.
It is widely known within the profession that an RoA should only be prepared where the client’s relevant circumstances, as set out in the previous SoA, have not significantly changed – but what constitutes a significant change?
Guideline 1 – What constitutes a significant change?
A significant change can be interpreted differently by different financial advisers, however at Dover we have construed a significant change to include:
- Income, debt level and/or investment under advice that has changed by more than 20% since the previous SoA
- A change to the client’s risk tolerance, occupation or family situation (e.g. newborn, inheritance, retire, death, separation etc.)
Where any of the above situations have occurred, it is Dover’s position that an SoA will need to be prepared to document the advice provided.
Guideline 2 – Is the advice consistent with the initial advice?
If the initial advice provided in the SoA covers risk insurance, an RoA may only be prepared if the further advice covers on risk insurance as well. Where the further advice involves other areas of financial planning, such as super or investments, an SoA is required to be prepared.
For risk insurance advice, if for any reason you are required to recommend a different insurer from the original SoA even though the original SoA was prepared within 12 months, an SoA is required. The reason being, a new product is recommended.
Another important point to note is that if the original SoA is not prepared by you as the financial adviser, you should not be relying on an RoA for any subsequent further advice, but instead prepare a new SoA.
Guideline 3 – SOA date
Further to the above, if the previous SoA has been more than 3 years and/or more than 3 RoAs have been provided during that period, an SoA should be prepared instead.
The reason we require an SoA is because the advice provided in the RoA should show some continuity of advice and to avoid confusion, an RoA should not be referring to multiple RoAs. It would also make sense to do a fresh SoA whenever your client opts-in to your ongoing services.
Whenever you are in doubt, it is best to do an SoA as you would not get penalised for doing an SoA but you would, if you are required to do an SoA and have not done so.
Further advice – other types of ROA with no previous SOA
An RoA may be prepared in some situations even if there is no previous SoA. These circumstances include:
- If the advice relates to any of the following financial products:
- Cash management trust interest;
- Non-cash payment facility for making non-cash payments that is related to a basic deposit product;
- A basic deposit product;
- Travelers cheque.
- If the advice is to retain an existing portfolio and take no action. However the advice should not consist of an opinion or recommendation relating to:
- the purchase or disposal of any specific financial product or the products of a specific issuer;
- an alteration to an investment strategy or contribution level in relation to a financial product held by the client; and
- the adviser, corporate authorised representative (if applicable), licensee, an employee or director of the licensee and any associate of any of these, do not directly receive any remuneration or other benefit in relation to the advice, apart from the remuneration received for an earlier purchase of a product.
- This is stated in section 946B(7) of the Corporations Act 2001.
- If the advice involves an investment of small amounts, that are $15,000 or less. This will not be applicable if a new superannuation fund and/or platfrom is recommended.
Contact your dedicated compliance consultant should you have any concerns about how this practice note applies to your clients or require assistance in any client matter.