Can I avoid having to give a foundation SOA?

by | Dec 7, 2020 | AFSL | 0 comments

Prepared by Catherine Evans

We get asked a lot of questions around when a new SOA is required to be provided to clients and most recently in relation to when Foundation SOAs are required for advisers either moving dealer groups or getting their own AFSL.

As most advisers know, a Record of Advice can be provided in relation to further advice (for existing clients who have already received advice previously) where:

  • the same providing entity has previously given the client an SOA setting out the client’s relevant circumstances in relation to the advice (the ‘previous advice’); 
  • the client’s relevant circumstances in relation to the further advice (taking into account the client’s objectives, financial situation and needs) are not significantly different from the client’s relevant circumstances in relation to the previous advice; and 
  • the basis on which the further advice is given is not significantly different from the basis on which the previous advice was given. 

The area of ambiguity is determining the providing entity under this test.

RG175.30 states that:

Providing entities may be the AFSL or authorised representatives (ARs). Representatives [i.e. employee representatives] that are not ARs are not providing entities. Where a licensee provides advice (e.g. through one of its employees), the licensee is the providing entity. Where an AR provides financial advice, the AR is the providing entity.

What RG175 unhelpfully does not refer to or explain is the additional wording in section 944A of the Corporations Act which refers to the capacity in which the AR is acting i.e. the identity of the authorising AFSL also determines the providing entity. This means that the providing entity will change where a different AFSL is authorising the AR.

There are a number of scenarios where this becomes relevant. However, two of these are where an adviser moves dealer group or where an adviser (or Corporate Authorised Representative) gets its own AFSL. In both scenarios Foundation SOAs are required

In our discussions with ASIC, it is clear that there is a change in providing entity in both scenarios because the entity on behalf of whom advice is being provided has changed. ASIC is also concerned to ensure that clients receive the critical disclosures provided in a SOA in relation to the new authorising AFSL including associations, conflicts of interest and remuneration arrangements.

The only way to avoid Foundation SOAs is to obtain case by case relief from ASIC. We are aware of 5 instances of relief provided by ASIC and relief has only been provided in a very narrow way based on the specific circumstances of the relevant situation. In our correspondence with ASIC, ASIC has made it clear that there is no widespread relief available.

We are aware that some advisers and wealth business owners have been told that they may avoid Foundation SOAs depending on the policy of the dealer group they move to. That is not the case. You must provide a Foundation SOA no matter which AFSL you move to (including your own)unless the relevant AFSL has been granted specific relief (and we are not aware of any relief being granted on this issue in 2020).

The upshot of this is that Foundation SOAs should not play into your decision about which dealer group to move to (unless you are making a decision to stay where you are). You should always select your licensing option based on the best fit for your clients and your business.

If you have already moved AFSLs and have not met the above requirements for Foundation SOAs or otherwise applied for ASIC relief, you will likely be in breach of the Corporations Act and we suggest you act to remedy this.