Disclaimer

This guide is provided on the basis that you confirm each guideline with your licensee before proceeding with producing Record of Advice documents. 
By reading the below guide, you confirm that acknowledge the general nature of this information.
The below information is provided to assist you in completing a Record of Advice. 
The key to determining whether an RoA can be used is to ascertain whether there has been any significant change to the:
  • client’s objectives and financial situation and needs; or
  • basis for the advice the adviser is providing or the client is requesting.  
The legislation does not provide a definition for “significant” and has left this to Licensees to determine.  The Licensee believes it is the adviser who is best placed to determine whether they think the changes to the client’s circumstances and the basis for the advice is significant and have provided the following examples to assist advisers to determine this.  

Examples of Significant Change

The following are examples of likely “significant change” – therefore a Statement of Advice will be required.

Some examples of likely significant change in a client’s personal circumstances are:
  • Client’s employment situation has changed or is about to change.  For example, retirement, retrenchment, resignation, moving from full time to part-time or vice versa or going on parental leave;
  • Client’s marital/family situation has changed or is about to change.  For example, separation or divorce, death or disability of the client or a family member or planning for a new child;
  • Client’s income has changed;  Treasury has provided some guidance as follows: “A change in annual income of $20,000 may represent a significant change in the financial situation of a person with an annual income of $50,000, but may not be a significant change for a person with an annual income of $200,000”
  • Client’s expenses have changed.  For example, a child becoming independent or children moving to a private school or university;
  • Client’s debt position has changed by more than 25% by either taking on more debt or reducing existing debt; or
  • Client’s asset position has changed by more than 25%.  For example, an increase or decrease in their total assets (including their principal place of residence) of more than 25% due to an inheritance or selling or purchasing a property.

Some examples of likely significant change in the basis of advice are:
  • Adviser initiates advice because there is a change to relevant legislation or new products.  Some examples of historical circumstances which illustrate a significant change to the basis of advice were the introduction of account based pension products and the 30 June 2007 Superannuation Contribution exceptions;  
  • A new or different strategy is recommended, for example where:
-          the further advice relates to insurance and the previous Advice Document related to wealth accumulation advice;
-          the further advice relates to gearing outside of superannuation and the previous Advice Document related to accumulation of investments inside superannuation; or
-          the further advice relates to the client drawing an income in retirement and the previous Advice Document related to superannuation in the accumulation phase.
  • A different class of financial products is recommended, for example where:
-          the further advice relates to purchasing listed securities and the previous Advice Document did not contain any listed securities advice or recommendations;
-          the further advice recommends certain life insurance products and the appropriate level of cover for the client, whereas the previous Advice Document focused on managed investment products and life insurance was only discussed generally in terms of the benefits of obtaining such insurance.

Examples of Possible Non-Significant Changes

The following are examples of advice scenarios where change may not be significant – in which event an ROA may be appropriate.  However, advisers must consider for each client if there has been any “significant change” to the client’s relevant personal circumstances or to the basis of the advice. 

1. Additional Contributions – Lump Sum 
Where the further advice relates to an additional lump sum contribution of up to 20% of the client’s total investment portfolio, there may not be a significant change in the client’s relevant personal circumstances. If however, the advice to contribute the additional amount results from a change in tax legislation, there may be a significant change in the basis of advice, even though the additional contribution is in itself relatively small.
Please note this concept needs to be applied to all the examples below.  For example, the adviser must not only consider the change to the client’s personal circumstances in isolation.  Even where there has been no change or no significant change to the client’s personal circumstances relevant to the advice - what has led the client to obtain advice or the adviser to initiate the advice might be significant.

2. Asset Allocation & Risk Tolerance Change 
Where the further advice relates to one of the following there may not be a significant change in the client’s relevant personal circumstances or to the basis of advice. 
  • Rebalancing back to the client’s Agreed asset allocation; or
  • A review resulting in a change in the client’s risk tolerance which results in a change of less than 15 percentage points from their Agreed growth and defensive asset split.
For example: Earlier advice identified the client as a Conservative investor which (given the permitted variances) resulted in an agreed asset allocation of 45/55 then upon review the client came out as a Balanced investor to which the recommendations would result in the asset allocation of 35/65. This move represents a change in the defensive growth split of 10 percentage points which is less than 15 percentage points.  Hence, a client’s change of risk profile may not, in itself, represent a significant change.

3.Switching Investment Options within a Platform
Where the further advice relates to switching between investment options which are similar in terms of features and risk/return characteristics (such as from one Australian share fund to another within the same investment platform), there may not be a significant change in the basis for the advice.

If however, the advice relates to switching between different investment options (within the same investment platform) with different features and risk/return characteristics - such as switching from a traditional managed fund to a hedge fund – there may be a significant change in the basis of the advice.

Note:  If the advice relates to switching platforms/administration services, an ROA cannot be used, regardless of whether or not there is a significant change to the client’s circumstances or the basis of advice.

Guide to completing a Record of Advice (RoA) - 10 points to consider

The RoA must include:

1. Client Details

Document the clients name and the Advice Document which this further advice relates to.
  • Include the client/s name/s.
  • Where you have two clients with the same name you should include the client’s date of birth or middle name.
  • Select the relevant previous Advice Document and note the date of this document.

2. Client Circumstances

Determine the changes to the client’s relevant circumstances.  These changes need to be documented in the RoA to make it evident that they are not significant having regard to the examples and table above.  This should in most circumstances, be updated prior to the further advice.
For advice provided in writing, the advice may be able to rely on the ‘assumed no significant change to circumstances’ provision.

3. Basis of Advice

Document the reason for the advice and whether this has been initiated by the client or the adviser.  Determine whether these are significant compared to the reasons the previous was sought.  These changes need to be documented to demonstrate that the change is not significant. 

4. Details of Advice Provided

Detail the advice that was provided to the client:
  • What the advice related to.  For example, listed securities recommendations, rebalancing the portfolio, additional contribution.
  • The reasons you provided to the client for redeeming existing products or recommending new products with reference to the client’s key goals. If the recommendation was that the client continues with their current products, detail the reasons you provided to the client for this recommendation.
  • What was stated to the client on:
           -  What products/securities were recommended for investing in/redeeming;
           -  Any refinements to the strategy; and
           -  Why this was appropriate to the client

5. Costs & Risks

Redeeming/Replacing
If switching investment options within a platform or selling listed securities and replacing them with other listed securities, summarise what the client was told in terms of:
  • Acquisition and disposal costs and charges which may be incurred (% and $ value);
  • Loss of benefits which may be incurred (and $ value) due to the replacement; and
  • Any other significant consequences for the client which are likely to occur.
Strategy/Products
This section should also detail any costs and risk associated with the product recommendations or refinements to the strategy.  Also ensure that the PDS name and preparation date is included where relevant. If the client doesn't have the most recent version of the PDS, ensure you provide the current version.

6. Warnings

Where the advice is provided in writing, the appropriate warnings need to be inserted into the RoA.
Where the advice is provided verbally, tick the appropriate box where you have given details of warnings communicated to the client.
  • The Limited Information Warning, where the client has not provided you with sufficient information relevant to the advice.
  • The Non- Approved products warning where advice is being provided on a non-approved product.
  • Other (for example Tax Advice Warnings)

7. Disclosure of Fees & Associations

Where the advice is provided in writing, the appropriate warnings need to be inserted into the RoA.
Where the advice is provided verbally, tick the relevant fee box AND summarise in the space provided what was communicated to the client for each of the area’s ticked. 

Ensure where possible that these are stated in % and $ terms.  Where it is not possible to disclose in $ terms then you must provide the client with worked dollar examples.

Any associations or conflicts of interest relevant to the product recommended must be disclosed.   

Please note – Unless using an RoA for the formal review, only the fees/commission/associations relating to the further advice need to be disclosed in the RoA.  If using an RoA at a formal review, you should use the RoA as the opportunity to disclose the existing ongoing fees/commissions.

8. Consent

You must confirm on the RoA that the client has consented to the implementation of the advice.  Where the client wants to proceed with amendments to your advice this must be clearly noted on the RoA.
Consent  to proceed can be received by the adviser in any of the following ways:
  • Verbally (and then recorded on RoA or file note); or
  • Written i.e. Email (and then recorded on the RoA);
Note: If the client communicates changes to their circumstances, the adviser must assess the significance and the affect on the advice provided. Considering the changes, further advice may need to be provided.

9. Other Items

Ensure that the RoA is signed and dated by the adviser. Ensure that they have the most current version of your FCSG and record on RoA accordingly.
Where the advice is provided verbally;
  • Ensure that you tell the client that they can obtain a free copy of the RoA;
  • If the advice is the result of the client’s annual review, send a copy of the RoA or a letter that states that the annual review has occurred, details all of the further advice outcomes and that the client can obtain a copy of the RoA from the adviser. 

10. Supporting Material

If applicable, attach copies of any information sent to the client relating to the recommendations.  For example, Client letters, research reports, assumptions/projections and generic information relevant to the recommendations.

The RoA includes a notes section where you can add further information or details of the discussion held with the client that may be relevant to the advice.
Try Our Record of Advice Templates