Since announcing its affordable advice project in November 2020, ASIC hasn’t provided much in the way of news regarding its progress.
We’ve seen an initial “high-level briefing” and an infographic, both of which summarised stakeholder feedback compiled from nearly 500 submissions. Common issues highlighted in the feedback included overheads and fixed costs, conservative licensee policies and insufficient clarity regarding the provision of limited and scaled advice.
Another problem cited was the time and cost involved in SOA preparation; because of this, ASIC said, participants in the project “want more guidance on providing ROAs [in place of SOAs] and have generally submitted they would like to see ASIC promote [their] use.”
We don’t yet know how ASIC will respond to the other issues mentioned in the briefing and infographic, but the regulator has responded to requests for greater clarity around ROAs with a new information sheet.
INFO 266 aims to define the circumstances in which an ROA can be given in place of an SOA. ASIC defines four separate “advice situations” where this would be suitable. Summarised, these are:
- Further advice, where the advice being given is based on the client’s circumstances not being “significantly different” from when the SOA was originally provided
- No buy or sell product advice, where the advice doesn’t recommend or state an opinion about the acquisition or disposal of a particular financial product
- Small investment advice, where the advice relates to investments in products not exceeding $15,000 in total
- COVID-19 advice, where advice is given under ASIC’s temporary COVID-19 relief measure, which lasts until 15 April 2022
While the last three situations ASIC outlines seem fairly clear-cut, you may have noticed the use of the phrase “significantly different” in the first one. With the exception of financial impacts from COVID-19, which are covered by the COVID relief measure, ASIC does not allow an ROA to be issued in place of an SOA if a clients’ circumstances are “significantly different” from when the previous SOA was provided.
So: what constitutes a significant difference in circumstances? Well, ASIC says you will need to “exercise your professional judgement” and decide for yourself. The information sheet does provide examples of relevant circumstances that may be considered significantly different – these include a new mortgage, a new baby, a divorce, redundancy or job loss – but some of these are confusingly recursive.
For example, an increase in income could be considered significantly different if the increase is significant. Similarly, certain health events (such as terminal illness, disability or trauma) could lead to significantly different circumstances for a client if the health event is itself significant.
There are several case studies that break down “significantly different” circumstances in more detail – one explains that a client earning $50,000 getting an additional $20,000 annually is significant, while $20,000 added to the income of a client earning $200,000 is not – but as ASIC notes, these are “just examples” and “each client’s relevant circumstances will be different.”
It’s unlikely that most advisers would support ASIC moving towards a more rigid and prescriptive regulatory approach, but on the other hand, it’s difficult to determine to what extent this kind of guidance will encourage advisers to make more use of ROAs.
If this is the basis upon which advisers will decide whether or not they’ll need to produce a new SOA, are we likely to see more widespread use of ROAs from now on? Or is more clarity required?
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