media release

IR 04-75 ASIC refines relief allowing Statements of Additional Advice

Published

The Australian Securities and Investments Commission (ASIC) today announced a new class order refining the relief issued in July 2004 allowing Statements of Additional Advice (SOAA) to be provided to retail clients instead of a Statement of Advice (SOA) in certain circumstances.

An SOAA is a document which incorporates by reference information from another document which has previously been provided to the client.

The class order announced today [CO 04/1556] expands the relief ASIC previously gave to allow an SOAA to be given to a retail client instead of an SOA.

‘The relief to allow SOAAs has been expanded taking into account industry concerns about a range of practical compliance difficulties with SOA disclosure requirements’, ASIC’s Director of Regulatory Policy, Mr Mark Adams said.

‘These refinements will allow greater flexibility in providing the information required in an SOA where an adviser has an ongoing relationship with a retail client.’

‘For instance, the adviser will be able to incorporate by reference information from a wider range of documents than was permitted by the original relief’, Mr Adams said.

The main changes to the relief brought about by [CO 04/1556] are that:

  • an adviser will now be able to incorporate by reference information from more than one clearly identified ‘eligible advice document’ previously given to the client;
  • the documents which satisfy the definition of ‘eligible advice document’ from which information can be incorporated by reference into an SOAA has been expanded to include SOAs, SOAAs and certain documents provided to the client before the FSR regime applied to the adviser. This expansion is intended to cover documents used by industry such as client fact finds and financial plans; and
  • an adviser will now be able to incorporate by reference information from an eligible advice document provided to the client by a different adviser representing the same licensee.

As with the original relief, if the client requests it, a copy of any eligible advice document must be provided free of charge.

‘We consider that these refinements will ensure that clients continue to receive relevant information while avoiding the need for advisers to repeat information previously given to the client’, Mr Adams said.

This class order does not affect or reduce the requirement to give appropriate advice in accordance with section 945A of the Corporations Act 2001.

The previous relief contained in class order [CO 04/576] is now revoked.

Further information about the new class order [CO 04/1556] is provided in the attachment to this information release.

Copies of class order [CO 04/1556] can be obtained from the ASIC Infoline by calling 1300 300 630 or from the ASIC website at www.asic.gov.au/co.

End of release

Download a copy of [CO 04/1556]

Attachment to Information Release 04-75

Statements of Additional Advice

Under the Corporations Act 2001 (the Act), each time a providing entity (a licensee or an authorised representative) provides personal financial product advice to a retail client, the providing entity must give the client a Statement of Advice (SOA). This obligation applies unless there is a specific exception (for example, the exception for further market-related advice provided by market participants). An SOA must contain specific information, which is described in Part 7.7 of the Act, particularly s947B, 947C and 947D.

ASIC Class Order [CO 04/1556] Statements of Additional Advice refines the application of Part 7.7 so that when a providing entity is required to give an existing client a further SOA, the client can instead be given a Statement of Additional Advice (SOAA) which can incorporate by reference certain information contained in one or more clearly identified ‘eligible advice documents’.

This relief is intended to allow providing entities to avoid duplicating information already provided to a client and to shorten the length of disclosure documents provided to existing clients.

This attachment explains:

  • when a providing entity can give an SOAA;
  • what information can be incorporated by reference into an SOAA;
  • whether there are any limitations on the types of information that an SOAA can incorporate by reference; and
  • how an SOAA must be given to a client.

When can a Statement of Additional Advice be used?

Under the class order, where personal advice is provided to a client by a providing entity an SOAA can be given to the client, instead of an SOA, where the client has previously been given one or more eligible advice documents by:

(a) the providing entity; or

(b) if the providing entity is an authorised representative - the licensee on whose behalf the providing entity is providing the personal advice (the authorising licensee); or

(c) any other person who was an authorised representative of the providing entity or the authorising licensee, as the case may be, at the time the eligible advice document in question was provided to the client (the previous providing entity).

The examples at the end of this attachment illustrate how this works in practice.

Under the terms of the class order, ASIC has reserved the power to issue a written notice to a providing entity informing them that they cannot in future use SOAAs for their clients.

What is an ‘eligible advice document’?

Under the class order, an SOAA can only incorporate relevant statements or information from one or more ‘eligible advice documents’ the client has already received. An eligible advice document is any of the following documents provided to the client by the providing entity, the authorising licensee or the previous providing entity:

  • a Statement of Advice (SOA);
  • a Statement of Additional Advice (SOAA) prepared in accordance with [CO 04/576] or [CO 04/1556];
  • any other document where all of the following are satisfied:
    • the document was given to the client before Part 7.7 applied;
    • the person providing the document (or the authorising licensee if the person providing the document was an authorised representative) was a person of the kind described in an item of column 2 of the table in subsection 1430(1) at the time the document was given to the client;
    • the document:
      • was the means by which financial product advice was given to the client; or
      • was a record of the financial product advice given to the client; or
      • was a record of the client’s relevant personal circumstances in relation to the giving of the financial product advice.

How is information incorporated by reference?

To take advantage of the incorporation by reference class order, the providing entity must:

  • prominently call the further SOA a ‘Statement of Additional Advice’;
  • clearly indicate in the SOAA:
    • that it must be read together with the clearly identified eligible advice documents;
    • which information contained in the eligible advice documents (if any) is no longer relevant or accurate and is not being included in the SOAA. Under the terms of the class order, all ‘relevant statements or information’ in the eligible advice documents is deemed to be included in the SOAA unless specified otherwise (the definition of ‘relevant statements or information’ is discussed below);
    • that the client can obtain a copy of the identified eligible advice documents free of charge from the providing entity and how this can be obtained. This is to ensure that the client will have access to the information in the eligible advice documents that is being incorporated into the SOAA (in case the client has misplaced the eligible advice documents); and
    • the date of the SOAA (being the date it was prepared or its preparation was completed).

Where the conditions of the class order, summarised above, are met, the SOAA is treated as if it includes all of the ‘relevant statements or information’ in the eligible advice documents, except for any information specifically excluded by the SOAA. Providing entities will be liable for the SOAA, including any information incorporated by reference into it.

Is there any information that cannot be incorporated by reference into an SOAA?

Yes. The information that can be incorporated by reference is defined as the ‘relevant statements or information’ under the class order. While this includes most information contained in eligible advice documents, it excludes:

  • the warning where advice is based on incomplete or inaccurate information about the client’s relevant personal circumstances (i.e. the statements required by s945B); and
  • information about the costs and benefits of replacing one product with another (i.e. the information required by s947D).

Therefore, the providing entity must still include the above information and statements (if required) in full in the SOAA. The providing entity cannot incorporate these items of information or statements by reference to the eligible advice documents. This information is considered to be of key importance to consumers.

Note: Remuneration and conflicts information that relates specifically to the new personal advice needs to be included in the SOAA. This new information would generally not already be in the eligible advice documents being referred to.

Can a providing entity incorporate by reference information from more than one eligible advice documents?

Yes. An SOAA can incorporate relevant statements or information from one or more eligible advice documents. However, the information and statements contained in the SOAA, including the information and statements being incorporated by reference, must be worded and presented in a clear, concise and effective manner. If the providing entity considers that the client would not receive disclosure that was clear, concise and effective if it relies on incorporation by reference – then it should not do so.

Clear, concise and effective

The information and statements contained in the SOAA must be worded and presented in a clear, concise and effective manner. This requirement will be very difficult to satisfy if the information in the eligible advice document was not presented in a clear, concise and effective manner. ASIC will monitor the use of this class order and will take appropriate action where there is sufficient evidence that this requirements is not being met.

‘Giving’ an SOAA

An SOAA must be given to a retail client in the manner provided for by section 940C of the Act which deals with how SOAs are to be give to clients and in accordance with the timing requirements in section 946C. This means that the time critical provision (s946C(3)) applies to an SOAA in the same way as to an SOA.

Enforcement provisions apply to SOAAs

Class Order [CO 04/1556] modifies Parts 7.1 and 7.7 of the Act, including the enforcement provisions in Division 7 of Part 7.7. The effect of these modifications is that Chapter 7 will apply to SOAAs prepared and given to retail clients in the same manner that it currently applies to SOAs.

Examples

The following examples illustrate when the SOAA relief can be relied on and when it cannot be relied on:

Example 1

Authorised representative X has provided personal advice from time to time over a number of years to retail client A. In December 2003 X provided A with an SOA. In September 2004, X provided A with further personal advice, the basis of which was contained in a SOAA (relying on ASIC’s relief of July 2004: [CO 04/576]) that incorporated by reference information in the SOA of December 2003. X now provides further personal advice to A in March 2005. Under the relief announced today X can meet their disclosure obligations by providing A with another SOAA that incorporates by reference information contained in the SOAA of September 2004 and the SOA of December 2003.

This example assumes there is information in the SOA of December 2003 and the SOAA of September 2004 that is still relevant for the contents of the SOAA of March 2005 and that the SOAA of March 2005 is clear, concise and effective.

Example 2

This example has the same facts as Example 1 except that, in addition, X provided securities recommendations to A in compliance with the pre-FSR regime. These securities recommendations were recorded in a financial plan issued to A in February 2001. Further, unlike Example 1, X does not provide further personal advice to A until March 2005 (i.e. post the FSR regime changes).

In this case, under the relief announced today, X can meet their SOA disclosure obligations by providing A with a SOAA that incorporates by reference information contained in the financial plan of February 2001.

This example assumes there is information in the financial plan that is relevant for the contents of the SOAA of March 2005 and that the SOAA of March 2005 is clear, concise and effective.

Example 3

Authorised representative X acts on behalf of licensee Y who became subject to the FSR regime in December 2003. Since December 2003, X has provided personal advice to retail client A on a couple of occasions including in an SOA in March 2004 and in an SOAA in October 2004 (relying on ASIC’s relief of July 2004: [CO 04/576]). In December 2004, X retires. Authorised representative X2, acting on behalf of the same licensee Y, takes over as A’s adviser. X2 provides personal advice to A in March 2005.

In this example, under the relief announced today, X2 can meet their disclosure obligations in March 2005 by providing A with an SOAA that incorporates by reference information contained in the SOAA of X of October 2004 and the SOA of X of March 2004.

This example assumes there is information in both the earlier SOAA of October 2004 and the SOA of March 2004 that is still relevant for the contents of the SOAA of March 2005 and that the SOAA of March 2005 is clear, concise and effective.

Example 4

Authorised representative X acts on behalf of licensee Y. Since Y became subject to the FSR regime, X has provided retail client A with a number of SOAs and SOAAs. A decides to receive personal advice from a different authorised representative X2 who now acts on behalf of a different licensee Y2 (although X2 formerly acted on behalf of Y). X2 provides personal advice to A in March 2005.

In this case, under the terms of the relief announced today, X2 cannot meet their disclosure obligations in March 2005 by incorporating by reference any relevant information contained in the SOAs and SOAAs provided to A by X (even assuming X2 had copies of them). This is because X2 acts for a different licensee and is not the same providing entity that provided A with the earlier SOAs or SOAAs.