Simpler Statements of Advice: why we're not there yet

The Australian Securities and Investments Commission’s (ASIC’s) Class Order that created the Statement of Additional Advice (SoAA) is history. And good riddance I say.

Since their inception in 2004, I have considered SoAAs more trouble than they were worth; the potential for content defects in SoAAs that trigger criminal sanctions were so much greater than Statements of Advice (SoAs) and taking ASIC on its word when it came to ‘scalability’ of advice.

Since 2005 we’ve had the vastly simpler option of Records of Advice (RoA), although this is only available where the five RoA rules are observed. Otherwise, it’s a SoA or else.

But we still have yet another attempt at regulatory relief in the form of Regulation 7.7.09 (Incorporation by Reference).

In August 2007 new rules were introduced permitting you to ‘incorporate by reference’ within new SoA ‘statements’ and ‘information’ previously provided to clients.

You would have thought SoAs would have become much simpler to produce. Not so, according to what I hear. Incorporation by reference (IBR) could turn out to be even less popular than SoAAs. Here’s why.

IBR may sound simple, but you need to appreciate the way the regulation is drafted to ensure you don’t slip up and (again) find yourself in breach of a mandatory content obligation (and strict criminal liability).

The regulation permits you to ‘refer’ to statements and information contained in a previous SoA rather than re-state them in your latest SoA, provided you do the following:

1. provide sufficient details about the statement or information to enable the client to:
   1. identify by unique identifier the document, or part of the document, that contains the statement or information;
   2. decide whether or not to read the statement or information or obtain a copy of the statement or information; and
2. state that a copy of the statement or information may be obtained from the providing entity on request, at no charge.

Sounds simple, but what ‘statements’ and ‘information’ are we referring to?

For SoA content purposes, section 947B covers the main requirements for Australian Financial Services Licensees (AFSLs), directors and employees, section 947C for authorised representatives.

The most obvious statements and information you might want to incorporate from a past SoA into a new SoA are:

1. a statement setting out the original advice;
2. information about the basis on which that advice was given; and
3. information about any remuneration (including commission) or other benefits that you, a body corporate related to you, a director or employee of either, or an associate of any of the above-mentioned people or entities is to receive that might reasonably be expected to be or have been capable of influencing the providing entity in providing the advice.

But really, why would you bother? ‘Cutting and pasting’ is just as simple, and you are less likely to make a content error, or worse still, overlook or misinterpret something really important.

What’s more, there are two ‘statements’ or bits of ‘information’ that cannot be incorporated into a new SoA by reference back to a past SoA: a section 945B warning and a section 947D (switch) disclosure.

So is IBR worth the bother?

I have reservations about IBR due to the subjective test of sufficiency under the regulations, but most of all I doubt the utility of IBR given the current SoA/RoA regime.

I doubt ‘unique identifier’ would create many problems.

But I do wonder why most ongoing advice is not delivered via RoA unless something really resignificant has occurred.

And if it has, why not just prepare an SoA relying on ASIC’s assurance as to ‘scaleability’?

IBR may be useful if you could use an RoA but wanted to use something that looked like an SoA instead. But that seems less about compliance and more about presentation.

It might also be useful should you choose to advise your clients to take up a discretionary service within the context of their original strategy (eg, if you operate via a wrap and wanted to avoid a licence variation, you could recommend to clients that they give you a discretionary mandate via the wrap).

But the path of least resistance for AFSLs offering a non-discretionary service model (the vast majority) is SoA then RoA, unless and until RoA benchmarks aren’t met, in which case an SoA is the way to go.

IBR just seems to be a very bureaucratic option when there are options like RoAs available that enable you to document most issues in-house and move on with your life.

Brett Walker is the director of Smart Compliance.