ASIC has released the first real output stemming from its consultation on access to affordable advice (CP 332), publishing a guidance on Record of Advice usage including long-awaited examples of situations whereby advisers are able to use ROAs instead of Statements of Advice.
The guidance follows a one-page infographic ASIC released on 1 July outlining the industry’s response to the original consultation which saw the regulator ask the industry what the main obstacles were to providing affordable advice to consumers.
One of the emergent themes from that consultation was that more use of ROAs would reduce the cost of advice. Of the 466 submissions received in the consultation (242 from advisers), 146 respondents supported greater use of ROAs, with “SOA preparation” identified as an inhibitor to cost-efficient practice.
In response, ASIC’s guidance attempts to clarify when to use ROAs, how to prepare them and, crucially for advisers and compliance teams, clarification on the kind of “significantly different” client circumstances that preclude ROAs being rather than SOAs.
“This is the first of ASIC’s initiatives developed in response to the financial advice industry’s recent feedback on our consultation to improve consumers’ access to affordable advice,” ASIC commissioner Danielle Press said. “We expect this practical guidance and information will provide clarity and certainty to financial advisers about when and how they can use ROAs.”
The guidance essentially takes Reg. 7.7.10AE from the Corporations Act (Situations in which a Statement of Advice is not required) and makes it more digestible, with accompanying examples to illustrate the intent.
The key message from the regulator: use the ‘further advice’ dispensation for ROA usage at will, but also use professional judgement to ascertain if the client’s situation has deviated enough for an SOA to be warranted.
“If the client’s relevant circumstances at the time you provide further advice are significantly different from the circumstances that you considered when providing the previous advice, you cannot use an ROA and must give the client an SOA for the further advice,” the guidance states.
Examples of relevant circumstances that may be considered significantly different, ASIC continues, could include:
- a new mortgage or significant increase or decrease in debt
- divorce or separation from a partner
- a new baby
- significant home renovations
- redundancy or job loss
- a significant increase or decrease in income
- sale of business
- significant health events (i.e. terminal illness, disability or trauma)
- death of a partner, and
- a move to aged care.
In a separate table, the regulator provides examples of when changes to a client’s relevant circumstances may be significant under the ‘further advice’ ROA usage banner.
A client earning $50,000 who experiences a $20,000 change in income would constitute a significant change, ASIC says, but someone earning $200,000 who experiences the same $20,000 swing wouldn’t.
An consistent income increase of five per cent over four years since the client’s previous SOA would be significantly different, while a two per cent increase over six years since the previous SOA would not be deemed signficant.
ASIC also reiterates that if the basis of the adviser’s further advice introduces “a new area or strategy”, this probably brings about significantly different circumstances and an SOA will be required.
Ultimately, however, and in keeping with its prediliction for more principles-based regulation, ASIC says the onus remains on the adviser to accurately assess whether an ROA can be given under the ‘further advice’ allowance or a change in circumstances warrants an SOA.
“You will need to exercise your professional judgement when considering whether any of your client’s relevant circumstances are significantly different from when the previous advice was given,” it states.
The guidance is an attempt from the regulator to bridge the gap between the intent of regulatory settings in the Corporations Act and the risk settings of advisers, compliance specialists and licensees, many of whom remain wary of ASIC’s entreaties to write shorter and fewer SOAs.
It was only a year ago that Press, speaking at Professional Planner‘s Best Practice Forum, said “overly conservative” licensees were hampering the delivery of advice.
While some advisers say ASIC is disconnected from the reality of compliance, Press’s point was somewhat validated by the submissions to its consultation on access to affordable advice, which saw respondents identify “conservative licensee policies and procedures requiring compliance above what is required by law” as contributing to the excessive cost to serve.
While the guidance constitutes the first real output from the access to advice consultation it’s understood ASIC will be feeding the bulk of the findings from CP 322 into Treasury, which is due to conduct its retail advice review sometime in 2022.