Frequent changes in the law mean compliance issues can often be a legal minefield. Here, lawyers David Court, Sonnie Bailey and Kathryn Wardrobe answer three frequently asked questions.
As financial services lawyers, we get asked a lot of compliance questions. Here are three common ones. They are:
- Are there any restrictions on a financial planner providing tax advice when advising a client?;
- How do I shorten my Statement of Advice (SOA)?; and
- How do I meet my continuing professional development obligations if I am a responsible manager under both an Australian Credit Licence (ACL) and an Australian Financial Services Licence (AFSL)?
Are there any restrictions on a financial planner providing tax advice when advising a client?
Financial planners are currently able to include tax advice when advising a client, as long as:
- They are an authorised representative of an AFSL holder; and
- Their advice is accompanied by a statement that they are not a registered tax agent and the client should request advice from a registered tax agent if they intend to rely on the advice to satisfy obligations or claim entitlements under taxation laws.
Of course, any included taxation advice would still be subject to the general conduct and disclosure obligations (such as the laws pertaining to misleading and deceptive conduct) applying to the provision of financial product advice under the Corporations Act 2001.
There has been increasing tension in recent times over the regulation of the provision of financial advice and taxation advice.
It is difficult in practice for a financial planner to provide financial advice without considering taxation implications and for a tax agent to provide tax planning advice without considering the types of financial products to use as structuring vehicles.
Historically, each area has had its own system of regulation.
But there has been increasing overlap due to the broadening of the reach of each regulatory system through the introduction of the Financial Services Reform and the Tax Agents Services laws.
Until 30 June 2012 the overlap has been resolved (at least in so far as financial planners are concerned) by exempting financial planners from the Tax Agent Services laws subject to the conditions set out above.
After that time it is intended that financial planners will need to obtain some form of tax advice authorisation and meet competency requirements before being able to provide tax advice.
Supervision of these requirements will be through the Australian Securities and Investments Commission (ASIC).
However, specific details of the scope of tax services that can be provided and the competency requirements are being considered by a working party composed of representatives from Government agencies and professional bodies.
David Court is a lawyer with Holley Nethercote commercial lawyers.
How do I shorten my SOA?
Preparing a Statement of Advice (SOA) takes time. It’s one of the reasons providing financial advice isn’t cheap.
If you can provide shorter SOAs to your clients, you can cut the cost of doing business.
An SOA is also an opportunity to showcase the value that you’ve provided to your client in providing your advice. The more succinct your SOA, the more likely your client is to understand it, perceive the value of your service, keep coming back to you, and recommend you to friends.
As a firm, we’ve seen thousands of SOAs. When we compare notes, a recurring theme is that SOAs are far longer than they need to be.
In fact, failure to provide short, clear SOAs can indicate breaches of the following obligations:
- That “statements and information included in the Statement of Advice must be worded and presented in a clear, concise and effective manner” – section 947B(6) of the Corporations Act 2001; and
- Financial services licensees must “do all things necessary to ensure that [the financial services they provide] are provided efficiently, honestly and fairly” – section 912A(1)(a) of the Corporations Act 2001.
We think one of the reasons that SOAs are so long is that advisers (and their lawyers) take an unnecessarily broad interpretation of the legislative obligation to give “information about the basis on which the advice is or was given” (section 947B(1)(b) of the Corporations Act 2001).
This obligation doesn’t mean a SOA needs to include all information about the basis of the advice. It may be appropriate to include this information for some clients, but in most cases it’s not.
It’s an AFSL obligation to keep your workings on file (for at least seven years), but a simple explanation about why you’ve made a recommendation is usually enough. Some other tips are:
- Be careful about the scope, and stick to it. Only include information in the SOA that’s directly relevant to the scope of your advice;
- Take advantage of your ability to incorporate information by reference. Refer to details from your Financial Services Guide and relevant Product Disclosure Statements, and even cost structures set out in your initial terms of engagement with the client. If you must refer to educational material, refer to it within the SOA, and provide it as a separate resource; and
- Invest resources into refining your SOA templates to a bare-bones, legally solid skeleton. (Over time, a template can grow into an unwieldy beast that is no longer clear and concise.) The investment in refining the template will pay off with efficiencies in the medium- to long-term.
The ASIC and Financial Planning Association (FPA) SOA examples are valuable resources which demonstrate how SOAs can be concise and effective (although they’re not perfect).
Finally, the shortest SOA is the one you don’t need to prepare:
- Know when you can prepare a Record of Advice (ROA) rather than a SOA;
- Have a clear grasp of the exact definition of “personal financial product advice”. Knowing this doesn’t just make for good after-dinner conversation. It can mean the difference between preparing a SOA (or ROA) and providing a simple general advice warning.
Sonnie Bailey is a lawyer with Holley Nethercote commercial lawyers.
How do I meet my CPD obligations if I am a responsible manager under both an ACL and an AFSL?
Responsible managers of ACLs are required to undertake 20 hours of continuing professional development (CPD) per year.
In our experience, it is also common for AFSL holders to require their responsible managers to undertake 10 to 20 hours of CPD per year (although no prescribed minimum number of CPD hours has been set by ASIC).
So, if you are a responsible manager of an ACL and an AFSL, does this mean that you need to undertake 40 hours of CPD per year?
It will be of little consolation to such responsible managers that the matter is not clear one way or the other.
However, as will become evident, we do not think that a dual responsible manager must complete double the CPD.
Responsible managers exist to demonstrate that the holder of the licence (ACL and/or AFSL) is competent to engage in the credit activities and/or provide the financial services authorised by its licence.
To demonstrate such competence to ASIC, the responsible manager must have the necessary qualifications and experience. Competence is an ongoing obligation for licensees, which must be demonstrated at all times.
Responsible managers of AFSLs
ASIC has not specified the minimum number of CPD hours that responsible managers of AFSLs are required to undertake each year. Nor does it outline what activities can be counted towards CPD.
What we do know (from ASIC’s Regulatory Guide 105) is that an AFS licensee is required to:
- Maintain and update the knowledge and skills of its responsible managers; and
- Keep records showing the steps it has taken to maintain its organisational competence.
The CPD activities should cover the financial services and products to which the responsible manager’s role relates and also knowledge of the regulatory environment.
Some common examples of CPD activities undertaken by responsible managers of AFSLs are:
- Attending relevant seminars and workshops;
- Having access to adequate resources (Internet and newspapers);
- Subscribing to relevant newsletters; and
- Internal and external training and assessments.
Responsible managers of ACLs
For responsible managers of credit licensees, ASIC has set a minimum of 20 CPD hours per year. It is also a standard condition (number 6 of ASIC’s Pro Forma 224) of every credit licence that CPD activities must:
- Be relevant to the role of the responsible manager with the licensee;
- Include product and industry developments relating to credit; and
- Include compliance training on regulatory requirements applying to credit activities.
Records of the CPD activities must also be maintained. ASIC states (at Regulatory Guide 206.66) that the following activities may count towards CPD:
- Attendance at relevant professional seminars or conferences;
- Preparation time for presenting at relevant professional seminars or conferences;
- Publication of journal articles relevant to the credit industry;
- Viewing DVDs of recent (within the last year) professional seminars or conferences (up to 10 hours per year); and
- Completion of online tutorials and/or quizzes on recent (within the last year) regulatory, technical or professional developments in the industry.
Striking a balance for the dual responsible manager
If, for example, the AFS licensing regime requires responsible managers to complete 20 CPD points, our view is that it does not mean that the dual responsible manager has to complete 40 CPD points.
The challenge for a responsible manager of both an ACL and an AFSL is to find the right combination of CPD activities covering appropriate topics that will allow the responsible manager to demonstrate they are maintaining competence under both regimes.
Here are some tips that will help dual responsible managers strike a balance between meeting their regulatory requirements and the practical difficulties of completing 40 hours of CPD per year.
- Consider the options and the overlap: check out what activities are available from a range of sources. For example, several industry magazines and newsletters will cover regulatory developments under both regimes. Also, the ACL and AFSL regimes impose broadly similar obligations on licensees under section 47 of the National Consumer Credit Protection Act 2009 and section 912A of the Corporations Act 2001. When considering potential CPD topics check for overlap between the obligations. For example, both licensees are required to have risk management systems in place that comply with AS/NZS ISO 31000:2009. Therefore, in our view any CPD activity relating to risk management would count as CPD for both regimes;
- Plan your CPD year carefully and creatively: we recommend that you or your support teams develop a forward-looking training plan which focuses on what you need to do to enhance your relevant knowledge and skills. A training needs analysis is a useful tool to help you target your training. Also, think creatively as to what constitutes training. As mentioned earlier, ASIC has made some suggestions in relation to the ACL CPD activities but this should not limit the range of CPD activities that might be undertaken, particularly in relation to the AFS licence. The actual number of hours of CPD you will need to undertake each year will vary depending on the various CPD options available. However, if you can only undertake a few activities that cover both regimes you may end up completing closer to 40 hours of CPD than 20; and
- Document your activities: this is a clear requirement of both regimes. If you’ve developed your training plan as outlined above, you can add the details to your training plan as you complete each activity. It is fine to have combined CPD training records that cover specific credit related and financial services related CPD.
Kathryn Wardrobe is a lawyer with Holley Nethercote commercial lawyers.
These three questions were submitted to www.complianceforum.com.au.
