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To ROA or SOA? That is the question

To ROA or SOA? That is the question
Financial Planning

RoA or SoA: Do you know when to use what?

As a financial planner or advisor, the advice documents you deliver to your clients are a regulated and essential element of your service.

I’m often asked when it’s ok to provide a Record of Advice (RoA) instead of a Statement of Advice (SoA). I understand. There is no clearcut, black and white explanation provided from the ‘powers that be’ on when we do what. Instead, we’ve taken our directive from examples given by ASIC and guidelines developed by compliance teams across the nation. With this in mind, let’s look at the Regulatory Guidelines on when to use an Record of Advice document versus a Statement of Advice:

There are three criteria we need to meet in order to use an RoA (RG175.170):

There is an original Statement of Advice on file for the client that includes a discussion of the relevant client circumstances.

There has been no significant change to the client’s circumstances.

There is no significant change to the basis of the advice.

There are also some exceptions to these rules but there are specific and care should be taken in understanding these scenarios before relying on the rules (Corporations Act Section 946B and Regulatory Guide 175.166). This goes some way to guiding you but beware the pitfalls of interpretation.

Point 1:

The original SoA and the advice contained within it have to include the ‘relevant’ client personal circumstances. This means discussion of the client’s circumstances must be included and considered in the original advice.

Point 2:

No significant change. What is significant? This has not been defined. What we do know is that a 5% change in income is not significant but a 30% change is. Does this mean 17% isn’t and 18% is?! Unfortunately, this sits squarely in the grey area. Common sense must prevail. A 17% change in income will differ in significance. For example, your client could retire earlier than planned, significantly impacting retirement advice previously given. You will need to make a judgement call on the significance of the change. Some more definitively significant changes include starting a family, getting a mortgage, marriage, divorce and death. Employment and cash flow will be more specific to the client involved.

Point 3:

No significant change to the basis of the advice. Although equally ambiguous, it’s a little easier to decipher a change in the basis of the advice. Super advice in the SoA and super advice in the RoA. Seems pretty simple right? Best to think of it as ‘in keeping with’ the original advice. Does the new advice extend on the original advice or take the client on a new trajectory? If it seems more of a continuum, then an RoA will suffice.

So there you have it... a few guidelines to help navigate the RoA versus SoA dilemma.

Where then, do we go wrong?

The original advice was provided but you cannot find it on file. You must have a copy on file and refer to it in the RoA(incorporation by reference)

The advice is different. The client has moved into a new life stage, they need advice in a different advice area, the new advice takes them in a new or different direction to the original advice.

A new product is recommended.

The amount is significant. If the original advice was a rollover of $50,000 and the subsequent advice is another $250,000.

Their personal circumstances have changed and impact the advice. Significant life events, cash wind falls, inheritance, substantial income increases, these will all be deemed significant.

Make sure that once you are clear on using the Record of Advice, you still address the key criteria within it such as the scope, goals and objectives, costs and risks, as they relate to the advice within the RoA. You are still providing advice, the Record of Advice is simply designed to be more focused.

Although we aren’t able to give you a definitive solution for when to use an RoA instead of an SoA, the guidelines help reduce ambiguity so that you can use your professional expertise to decide what is best for your client.

Related reading on financial advice documents and best practices for Financial Planners and Advisors:

Nod Document Automation for Financial Planners

How to write a clear and concise Statement of Advice

Statement of Advice Checklist

Nod Statement of Advice Document Template

Nod Record of Advice Document Template

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