Record of Advice (ROA) - why and when to use?

The option of using a record of advice has been available to advisers for a number of years. Samantha Hills clears confusion as to why financial planners would use one, when they can use it, and what it should look like.

Normally, giving a client personal advice triggers the need to provide a Statement of Advice (SOA). The SOA could be the means by which you communicate your advice to the client in the first place.

More often, however, the SOA confirms advice you have already given to the client verbally. This is perfectly acceptable under the Corporations Act 2001.

The SOA is typically a lengthy document, and despite the use of templates by many firms, takes some time to prepare.

On many occasions, the work involved in preparing and sending an SOA does not seem worth it. Consider the following example:

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The client calls their financial adviser because they are concerned at the downturn in the market.

The financial adviser reassures their client, reminds them that the client’s investments are based on a recommendation with a long-term investment timeframe and confirms that there is no need for the client to change their investments at this stage.

The call takes two minutes.

A record of advice (ROA) performs a function similar to an SOA, but is typically a shorter, more informal document, with fewer content requirements than its SOA cousin.

It need only be given to the client if the client requests it (except for Records of Small Investment Advice: see below). In the absence of such a request, the ROA may simply be kept among the financial adviser’s records. For this reason, an ROA can be as simple as a file note.

The Corporations Act 2001 and associated regulations set out various occasions on which an ROA may be used in place of an SOA.

When to use ROA

There are four occasions on which an ROA can be used. For this reason, it is easier to think about there being four different kinds of ROA.

You need to decide as a business which kinds of ROA will be useful to you on an ongoing basis. This will then determine what procedures you put in place, what templates you develop, and how you train your staff.

1. Further advice ROA

The most well-known kind of ROA is the one you may use when providing “further advice”. The provisions which give rise to this kind of ROA are found in regulation 7.7.10AE of the Corporations Regulations 2001.

This regulation allows you to prepare an ROA instead of providing the client with an SOA, where:

• You have previously given the client an SOA setting out their relevant personal circumstances in relation to the advice set out in that SOA;
• The client’s relevant personal circumstances in relation to the further advice (determined having regard to the client’s objectives, financial situation and needs as currently known to the adviser) are not significantly different from the client’s relevant personal circumstances in relation to the previous advice;
• So far as the basis on which the advice is given relates to other matters – the basis on which the further advice is given is not significantly different from the basis on which the previous advice was given.

These are obviously quite broad requirements and applying them is subjective. We generally advise firms, in light of their own experience and client base, to develop a list of specific situations in which this kind of ROA might be used.

For example, one such situation might be when you recommend a rebalance or switch within a platform or service, but where you remain consistent with the strategy recommended to the client in the previous SOA and with the client’s risk profile.

Factors you might like to consider when deciding whether this kind of ROA can be used are:

• Changes to the client’s risk tolerance;
• Changes to the client’s family situation;
• Significant changes to the client’s income;
• Significant client illness or incapacity;
• Changes occurring to a product;
• Tax considerations;
• Risk (attached to the product);
• Economic environment;
• Regulatory environment;
• Significant local or world events.

In order to be satisfied that the client’s circumstances are not significantly different from when the SOA was given, an adviser needs to determine if there has been a significant change to the client’s circumstances since the SOA was provided.

Regardless of checklists, this kind of ROA works best when advisers using it are well-trained on when and how it is to be used. A reputable firm of financial services lawyers or compliance consultants can be really useful here.

2. Deposit products and certain other products ROA

If you provide personal advice on any of the following financial products you don’t have to provide an SOA and can instead rely on an ROA:

• A basic deposit product;
• A non-cash payment facility for making non-cash payments that is related to a basic deposit product;
• Travellers’ cheques;
• Cash management trust interest;
• Motor vehicle, home building, home contents, travel, personal and domestic property, and medical indemnity insurance products.

3. Hold ROA

Another kind of ROA is one which may be used where the adviser recommends that the client take no action in relation to their portfolio – sometimes known as a “hold” recommendation.

There is no need for the adviser or licensee to have previously provided an SOA to the client.

The provisions relating to this kind of SOA are found in section 946B(7) of the Corporations Act 2001. These provisions state that an ROA may be used where:

• The advice does not recommend or state an opinion in respect of:
  • The acquisition or disposal of any specific financial product or the products of a specific issuer; nor
  • A modification to an investment strategy or a contribution level in relation to a financial product held by the client; and
  • The following people do not directly receive any remuneration (other than remuneration that is currently being received for an earlier acquisition of a product) or other benefit for, or in relation to, the advice:
  • The adviser;
  • The corporate authorised representative (if applicable);
  • The licensee;
  • An employee or director of the licensee;
  • An associate of any of these.

The term “associate” encompasses a broad array of people and entities – for example, a body corporate related to the adviser, corporate authorised representative or licensee.

This ROA would be appropriate for the example provided earlier in this article.

4. Small investment financial advice ROA (RoSIA)

There is a fourth kind of ROA available for advice relating to small investment amounts. Financial advisers may have heard the figure of $15,000 being bandied about in this context.

The difficulty with this kind of ROA is that the provisions relating to its use are complex.

There are different rules for different product types, and these vary – particularly when it comes to working out what is and is not included in the threshold for each product type.

For this reason, many businesses find the complexity in working out if this kind of ROA can be used on any one occasion outweighs the benefit.

As mentioned earlier, unlike other ROAs which only need to be provided if clients ask for them, RoSIAs need to be given to the client as soon as practicable after the financial advice is given and, in any case, before any other financial service which relates to the advice is provided.

Record of Advice Requirements

There are no hard and fast rules as to what an ROA should look like.

Many SOAs look similar to one another. This stems partly from the numerous prescribed content requirements pertaining to them – for example, the need to have the title “Statement of Advice” on the cover or near the front of the SOA. It also stems from the fact that the SOA is a document prepared primarily to be read by the client.

ROAs generally (except for RoSIAs) only need be given to the client if they request a copy of them and have few content requirements.

For those reasons, they need to be reasonably neat and accessible. A client may ask for a copy of the ROA at any time up to seven years after the provision of the advice to which it relates. You must accede to any such request.

Many ROAs are never requested by clients. Accordingly, they can be prepared in a way which fits with your usual recording keeping practices for telephone conversations and file notes.

Some licensees develop a one-page file note template which doubles as an ROA.

The role it plays becomes apparent once appropriate boxes are ticked by the financial adviser and appropriate content is filled in. It is completed by hand and filed on a physical file.

We have observed one client who uses a grid to record all client contacts and action taken (for example, products purchased) as a result of such contacts.

Each entry pertains to one telephone conversation. Whether or not the entry constitutes an ROA depends on whether the conversation entails personal advice.

If it does not, the entry is merely a note of a conversation – perhaps an execution-only conversation. If it does, the entry is one of personal advice. The column headings in the table help to make it clear which is which.

A further option is to keep ROAs electronically. It is fine to do this and have no hard copy ROAs. This way, an ROA template can mesh in with software used to record client details and create SOAs.

The software system might even assist financial advisers in working out whether an ROA may be used by, for example, providing a link to the previous SOA.

Another option is to email the client to confirm your advice and make the email your ROA. Although you are not obliged to provide most ROAs to the client unless they ask for them, there is nothing precluding you from providing them proactively.

The requirements for what must be included are set out in regulation 7.7.10AE of the Corporations Regulations 2001 and section 946B(9) of the Corporations Act 2001.

In summary, an ROA must include:

• A record of the financial advice given or brief particulars of the recommendations made – for example, increase income protection cover by $X in light of a recent salary increase;
• Brief particulars of the basis on which the recommendations are made – a reference to the client’s circumstances as set out in the SOA is acceptable here, according to ASIC Regulatory Guide 175 at paragraph 175.202;
• Remuneration and association disclosures usually required by an SOA;
• If the financial advice is to replace one product with another, brief particulars of the product replacement information usually required in an SOA.
• The remuneration and association disclosures are:
• Relevant remuneration (including commissions) paid to the fiancial adviser, corporate authorised representative, licensee or related parties;
• Information about interests, associations or relationships with product providers.

These things must be disclosed insofar as they might be expected (by an independent bystander – not the financial adviser) to be capable of influencing the advice given.

The replacement product information requirements are set out in sections 947D(2) and 947D(3) of the Corporations Act 2001. It is:

• Information about the following, to the extent that the information is known to, or could reasonably be found out by, the financial adviser:
  • Any charges the client will or may incur in respect of the disposal or reduction;
  • Any charges the client will or may incur in respect of the acquisition or increase;
  • Any pecuniary or other benefits that the client will or may lose (temporarily or otherwise) as a result of taking the recommended action;
• Information about any other significant consequences for the client of taking the recommended action that the financial adviser knows, or ought reasonably to know, are likely;
• If the financial adviser knows or is reckless as to whether the client will incur such charges, lose such benefits or experience such consequences, but does not know and cannot reasonably find out what these will be – a statement to the effect that there will or may be such charges, losses and consequences, but the adviser does not know what they are.

Don’t forget

Being able to understand and harness the ROA provisions requires a good understanding of what constitutes personal advice in the first place.

Consider the following example and see if you can work out if it is personal advice, general advice, or no advice at all.

You say to a longstanding client, “Bob, I think you should increase your income protection cover.” Your client says, “I’m happy to leave it where it is right now, thanks, Gerry.”

This is personal advice and might be the perfect occasion for an ROA.

There are numerous organisations who can provide refresher training to you and your financial advisers to enable them to identify when they are giving personal advice, when they are providing no advice at all, and those rare occasions when they might provide general advice.

FSG

If you are using ROAs, do not overlook your financial services guide (FSG).

At least insofar as ROAs relating to further advice are concerned, you need to put certain information in your FSG. This is:

• A statement that the client may request a record of further advice that is provided to them – if they have not already been provided with such a record;

• Information about how the client may request such a record – for example, by telephone;

• The fact that the client must make the request within seven years of the advice being provided.

See, now wasn’t that simple! It’s no wonder it’s so difficult for licensees and financial advisers to comply with all their obligations.

Samantha Hills is a lawyer at Holley Nethercote Commercial Lawyers.