Sent: 25-08-2009 11:52:01
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Statements of Additional Advice can no longer be used.
Effective from 1st September, Statements of Additional Advice can no longer be used.
This change was made in late May this year when ASIC updated its Regulatory Guide 175 Licensing: Financial Product Adviser - Conduct and Disclosure. This was greeted with little fanfare and it seems some practices may have missed this.
ASIC's changes came when it consolidated its guidance provided in FAQs and media releases, some dating back to as far as 2004, as well as guidance on the application of regulatory changes that have occurred over the past 18 months. The updated RG 175 now includes ASIC guidance upon:-
- The exemption to the definition of retail client for sophisticated investors.
- The exemption from the provision of SOAs in certain situations. For example:- advice in connection with small investment amounts, advice provided that does not recommend specific products.
- Allowing SOA content to be provided by referring to statements or information contained in other documents provided to the client (incorporation by reference).
How does this affect SOAs and SOAAs?
The change made to the financial services laws that allows advisers to incorporate information into SOAs by reference to other documents, as well as the flexibility that Records of Advice provide, has led ASIC to deem SOAAs as being unnecessary.
So, ASIC has advised it will revoke its class order that allows SOAAs to be used effective from 1 September 2009.
This means that AFS Licensees that wish to prepare advice documents similar to SOAAs need to revisit their SOA template and work out how to effectively utilise the incorporation by reference provisions or rely upon Records of Advice to do so.
What is incorporation by reference?
Your SOA can meet the content requirements of the Corporations Act by referring to the relevant information contained in other documents provided to your client.
For any information that is to be incorporated by reference, the SOA must:-
- Refer to the specific statement or information
- Provide sufficient details to allow the client to easily identify and refer to the relevant information in the particular document. Unique identifiers used should include the title and date of document, as well as section and page number references.
- Provide a statement that a copy of the information may be obtained from the adviser or AFS Licensee at no charge on request.
The AFS Licensee or adviser must give the client the document referred to (or relevant part) either at the same time as providing the SOA unless the document has been previously provided, for example a previous SOA, SOAA, ROA, PDS etc. (Do we have enough acronyms?)
Utilising incorporation by reference rules can be carefully used to create an equivalent document to a SOAA. In fact, incorporation by reference allows greater flexibility for SOAs in any situation.
It also carries greater risks that disclosure obligations will not be met. Many licensees have not utilised these rules for this reason.
When using incorporation by reference it is recommended that Licensees and Advisers -
- ensure a rigorous check is employed before the SOA is issued to ensure the content requirements are met - either within the SOA or by reference to other documents.
- ensure a record is kept of the document being referred to as well as recording when it is provided to the client.
- consider whether a restriction should be applied to the age of the referred document to avoid outdated or misleading information being provided to clients.
This email is general in nature only and does not constitute or convey specific or professional advice. Legislation changes may occur quickly. Formal advice should be sought before acting in any of the areas discussed. Be aware that the information in these articles may become innaccurate with time. Responsibility is disclaimed for any inaccuracies, errors or omissions. Particular investments are neither invited nor recommended and hence this publication is not "financial product advice" as defined in Section 766B of the above legislation. All expressions of opinion by contributors are published on the basis that they are not to be regarded as expressing the official opinion of any other person or entity unless expressly stated. No responsibility for the accuracy of the opinions or information contained in the contributor's articles is accepted by any other person or entity. Copyright: This publication is copyright. If you wish to reproduce this article you require a license, which can be purchased here, to do so.