Lawyer says ‘no hard and fast rule’ on ROA provision

While there are rules laid out in the Corporations Regulations around when a financial adviser can provide a record of advice (ROA) rather than producing a new statement of advice (SOA), Holley Nethercote partner Samantha Hills said there is a lack of clarity around what level of changes in somebody's circumstances warrants rewriting an SOA.

In November last year, the Financial Services and Credit Panel (FSCP) suspended an adviser’s registration for failing to comply with his obligations when providing advice to three clients, using ROAs that relied on SOAs that had been given to the clients up to seven years ago.

At the FAAA Roadshow in Sydney last week, Hills said the FSCP taking action on this issue highlighted that advisers need to ensure that there have been no “significant change in circumstances” if they are to provide an ROA.

“You can't say that there's been no significant change if that five-year period has elapsed,” Hills said.

“The panel also found that the record keeping was not really ideal in this business, and so it made it harder to establish things like the best interest duty being met.

The panel also invoked parts of the code of ethics, and we know the code of ethics has been slated for change, but there's no sign of that happening yet.”

FAAA general manager policy, advocacy and standards Phil Anderson added that, under regulation 7.7.10AE, there are three areas that need to be met to rely on an ROA.

“It applies that where a provider has provided an SOA previously, and the provider could be either the individual or licensee, that the client's personal circumstances have not changed significantly and the basis of the advice has not changed significantly,” Anderson explained.

“There are three key parts to it: it’s got to be the same providing entity, the personal circumstances have not changed significantly, and the basis of the advice hasn't changed significantly.

“Now, I think the real challenge is around the personal circumstances having changed significantly. I think that the time since the SOA was produced is more like a proxy for what might be reasonable.”

He added that while it would be “arguable” that a client has not changed anything in five years, when applying this time frame to most clients many of their circumstances could be very different.

“Things do change. They change jobs, they might have additional children, their health may deteriorate, they may transition to a new stage in life. You've got to be really careful about that one,” Anderson said.

“I think that the change in the basis of the advice is a whole lot easier. If you previously gave super consolidation advice, I don't think giving life insurance advice is going to be OK. You've got to have provided advice on that basis, it's got to be in the same area.”

There are also external factors that can impact the basis of advice, such as changes in super legislation or the New Aged Care Act, for example.

“There's no hard and fast rule here,” Hills said.

“I guess the take out that we're supposed to take from this decision is that, in this case, the adviser had left five years and the panel said, ‘that's just not cool’.”

The regulations, she stressed, do not specify a time frame.

“This is where [advice firms] need to make some judgement calls when you're setting up your processes around when an ROA can and can't be used,” Hills said.

“What do you think might be a reasonable timeframe? But don't get too set on that timeframe. You're giving advice to the client so that immediately the best interests duty is invoked, you're going to need to find out things about the client's circumstances, and what you find out that underpins your advice.

“That's your information that you need to look at and say, ‘is this significantly different from when I first gave the client a statement of advice?’ Now, you can give a large degree of discretion to your advisers, or you can try to formulate some broader principles that you're going to follow consistently in your business around that.”