Incorporation by reference SOA: The legal shortcut you didn’t know you needed

When it comes to financial planning, there are two main documents that are commonly used by a provider of personal advice (providing entity) when providing advice to their clients. These are the statement of advice (SOA) and the record of advice (ROA). However, there is also a third document (a different type of SOA) that is less commonly known or used than the standard SOA but is often much more efficient to use, when used correctly. This document is referred to as the incorporation-by-reference SOA (IBR SOA).

What is an IBR SOA?

An IBR SOA is a type of SOA that allows a providing entity to refer to information or statements contained within other documents (including previous SOAs) instead of having to repeat everything in a new SOA. Essentially, it serves as a personal advice document that bridges the gap between when a providing entity cannot use an ROA because their client’s personal circumstances, having regard to their objectives, financial situation and needs, are significantly different from the client’s personal circumstances in relation to their previous advice and having to provide the client with a completely new SOA.

It is also useful when an ROA cannot be used because the providing entity is different to the providing entity which provided the previous advice – for example, where an adviser employed by one licensee has become employed by another licensee.

How do IBR SOAs work?

In order to compliantly prepare and rely on an IBR SOA, a providing entity must, in the IBR SOA:

1. Refer to the particular statement or information that is to be included and relied on within the IBR SOA.
2. Provide the client with sufficient information about the statement or information to be relied on to enable the client to identify by a unique identifier the document, or part of the document, that contains the statement or information and to decide whether or not to read the statement or information or obtain a copy of the statement or information.
3. State that a copy of the statement or information may be obtained from the providing entity at no charge to the client.

As an example, a providing entity might include the following sentence in their IBR SOA:

“You can find the details about your objectives, financial situation and needs and my prior recommendations in the statement of advice provided to you dated 20 December 2023.

"If you would like me to provide you with a copy of that statement of advice, please let me know and we will provide you with a copy of that document at no charge to you.”

The IBR SOA must still meet the mandatory SOA content requirements set out in the Corporations Act 2001 (Cth) and Corporations Regulations 2001 (Cth) but can do so by incorporating that content by reference, with two exceptions.

Information relating to remuneration and appropriate disclosures in the event the IBR SOA contains a recommendation to replace one financial product with another and the warning required in relation to inaccurate or incomplete information provided by the client must appear in the IBR SOA in full and cannot be incorporated by reference to other documents.

When might a providing entity use an IBR SOA?

A providing entity might use an IBR SOA in situations where:

1. Multiple advice documents exist: If a client has received various pieces of advice over time, a providing entity can use an IBR SOA to consolidate these into one reference point to create a streamlined SOA that does not add additional length to what can, at times, be an overwhelmingly large document.
2. Update existing advice: If previous advice documents are still relevant but only one material aspect has changed, a providing entity can use an IBR SOA to incorporate those into new personal advice without having to restate that previous advice.
3. Complex financial situations: For clients with intricate financial needs, it can be efficient to reference detailed reports rather than summarising all that information again.
4. Change of providing entity: Where the previous advice was provided by a different providing entity and it is therefore not possible for the new providing entity to use an ROA, the new providing entity can use the IBR SOA to incorporate some or all of an SOA provided by the previous providing entity into the latest SOA.

Why use an IBR SOA instead of an ROA or new SOA?

As outlined at the start of this article, an ROA is another financial advice document that can be used by a providing entity to provide further personal advice to a client where they have already received either an SOA or an IBR SOA and can be used where the client’s personal circumstances (having regard to their objectives, financial situation and needs) are not significantly different when compared to the client’s personal circumstances set out in their previous personal advice document. When comparing an IBR SOA to an ROA, there are some distinct advantages in using an IBR SOA instead of an ROA. These are:

1. Compliance: First and foremost, using an ROA in an effort to provide a client with a shorter advice document may not be appropriate or legal if it is clear (or would reasonably be clear) to the adviser that a client’s personal circumstances have significantly changed.
2. Efficiency: An IBR SOA can save time by not requiring the providing entity to repeat information that is already documented in another SOA, ROA or in any report or other document that relates to their client’s financial situation.
3. Clarity: By referencing existing documents, clients can see the complete picture without having to sift through repeated information.
4. Cost of advice: If a providing entity cannot use an ROA because a client’s personal circumstances have significantly changed or because the providing entity has changed, then providing a client with an IBR SOA may be a more affordable option for the client as opposed to the providing entity having to prepare a standard SOA.

Conclusion

IBR SOAs offer a flexible, efficient and legally compliant way for a providing entity to provide their clients with personal advice. They also help streamline the personal advice process, which typically results in a better experience for the client.

However, it is crucial for providing entities to ensure that if they are going to provide a client with an IBR SOA, they identify the particular document, or part of the document, that is to be incorporated by reference in the IBR SOA, make clear that the client is entitled to receive a copy of the information or statement being incorporated, at no cost to them and ensure that the IBR SOA contains the mandatory content ordinarily required of a standard SOA.

Providing entities should also ensure that disclosures relating to product replacement recommendations and the warning about incomplete or inaccurate information are included in the IBR SOA in full as the IBR SOA provisions do not allow cross-referencing to be used for these pieces of information.

As with any personal advice document, a careful and considered approach in determining which document is appropriate to use is always important. But with greater awareness of the existence and benefits of the IBR SOA, providing entities can add another tool to their belt in providing their clients with personal advice in a more efficient and affordable manner.

Glenjon Aligiannis, senior associate at Holley Nethercote Lawyers