What Conditions Must Be Met to Use an ROA Instead of an SoA?

The Record of Advice is one of the most useful tools in an advice practice's documentation toolkit. But it is not always available. Section 946B of the Corporations Act sets out three conditions that must all be satisfied before an ROA can be used in place of a full Statement of Advice. All three. Not two out of three.

Condition 1: A relevant prior SoA must exist

Before an ROA can be given, the client must already have received an SoA that covers the same subject matter as the advice now being given. There needs to be a specific, identifiable prior document on file.

This condition matters for two common reasons:

• If the client is new to the practice, or new to the particular subject matter, no prior SoA exists and an ROA cannot be used.

• If the existing SoA covered superannuation but the current advice relates to insurance, the prior SoA does not satisfy this condition for the insurance advice.

Condition 2: The client's circumstances have not significantly changed

Since the prior SoA was given, the client's objectives, financial situation and needs - to the extent relevant to the current advice - must not have changed significantly.

This condition requires active assessment at each advice interaction. Examples of changes that typically require a new SoA include:

• A material increase or decrease in assets or liabilities.

• Retirement or a significant change in employment status.

• Marriage, separation or divorce.

• A change in dependants.

• A substantial shift in stated financial objectives or risk tolerance.

• A serious change in health affecting financial planning decisions.

The longer the gap since the original SoA, the more carefully this condition needs to be assessed. Circumstances that were unchanged at six months may be materially different at two years.

Condition 3: The further advice is not significantly different

The advice being given now must be consistent with, or at least not materially different from, the advice in the prior SoA.

Examples of advice that is likely to be significantly different include:

• Recommending a move from accumulation phase to retirement income phase.

• Switching from a growth-oriented to a conservative investment strategy.

• Adding a product class not covered in the prior SoA.

• Recommending disposal of assets in a substantially different risk category.

If there is genuine uncertainty about whether the advice is significantly different, the answer should be to prepare a new SoA. The conservative position is always the correct one here.

All three must be present -- not two out of three

The s946B exemption is only available where all three conditions are met simultaneously.

An ROA given where any one condition is absent is not a valid substitute for an SoA. It means the obligation under s946A was not met and the advice was not appropriately documented. The regulatory and compensation consequences are the same as for any other SoA failure.

What the ROA must contain once the conditions are met

Once all three conditions are confirmed, the ROA must comply with Regulation 7.8.10A and include:

• A reference to the prior SoA the ROA relates to.

• An explanation of why no new SoA is being given.

• A description of how the further advice differs from the prior advice.

• Remuneration and benefits disclosure relevant to the further advice.

• Disclosure of any relevant conflicts of interest.

The ROA must be given to the client. An ROA retained on the practice file but never provided to the client does not discharge the obligation.

A practical checklist before issuing an ROA

Run through these questions before finalising an ROA:

• Do I have a prior SoA that covers this subject matter? If not, prepare an SoA.

• Have the client's circumstances changed significantly since that SoA? If yes, prepare an SoA.

• Is this advice significantly different from what the prior SoA covered? If yes, prepare an SoA.

• Does the ROA identify the prior SoA, explain why no new SoA is being given, and include the required disclosures? If not, revise the ROA before sending.

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