Triple Beef Patties – the key ingredient to time critical advice

 

Providing a client with the necessary disclosures in time critical cases can be likened to a fast-food, rush hour drive-through order, where a customer is served up with the “essential” beef burger patties immediately, only to be sent a burger with “the lot” 5 days later.  Because, just as the key ingredient to any burger (apologies, non-meat eaters) is the “beef patty”, so too is the “statement of certain information” requirement in section 946C(2) of the Corporations Act 2001 (Cth) (“the Act”), the hero ingredient to any SOA.

To explain further, when a providing entity (which we assume for the purposes of this piece, is an individual Authorised Representative and Adviser) does not use an SOA as the means to provide advice, the Adviser must provide the client with a “statement of certain information” when the advice is provided, and, as soon as practicable, provide the client with the SOA thereafter.

What is time critical advice?

A common misconception is that the SOA must be provided within 5 days from the day the advice is given.  However, there is not yet a “time critical case” at this stage of the Adviser/client interaction, as section 946C(1) of the Act stipulates, that the SOA must be given to the client “as soon as practicable” after the advice is provided.  As soon as practicable means “all things considered”, therefore, if the advice is relatively straight forward, the SOA could be emailed to the client the same day that the advice was given.  By contrast, more complex advice may require longer timeframes.  In any case, the SOA must be provided before the Adviser provides the client with any “further financial service”.

To put it simply, time critical cases arise when an SOA is forthcoming for advice already given and the client instructs the Adviser that they immediately require a further financial service (such as the implementation of the advice), and it is not reasonably practicable for the Adviser to give the client an SOA before the client’s further instructions are initiated.  There must be two connected financial services for a time critical case to exist, where the second of the two financial services arises or relates to the first.  In a common example, the provision of advice is the first financial service provided, and the “implementation” of the advice (such as the acquiring of a financial product) is the second financial service.

Prime examples of time critical cases include the need for immediate insurance cover or a last-minute superannuation contribution before a 30 June deadline.

What may come as a surprise is that it is not the provision of personal advice that sets off the oven timer requiring that an SOA be prepared within 5 days, but rather the “further service” arising from the advice itself (e.g. the acquiring of, or arranging for the acquisition of a financial product).

The “statement of certain information” – much the same as a triple burger beef patty

A written SOA isn’t always the method in which advice is delivered to the client; for example, advice can be given to a client orally.  If advice is all the client requires (e.g. the advice is purely strategic advice), then the adviser is required to provide the client with an SOA as soon as practicable after the advice is provided.  There is no ticking oven timer counting down the days before such SOA must be given to the client at this point, but that is not to say that the client can leave the Adviser’s office empty handed after the (advice resulting) conversation ends.  The Adviser has an obligation to provide the client with a “statement of certain information” (as it is referred to in section 946C(2) of the Act); or what we liken to as the “triple beef patties” in a burger with “the lot”.

The analogy will be obvious once you see just what the certain disclosure information requirements are, and how these disclosures are basically the essential ingredients to any SOA.

The triple beef patties – an ingredients list

When an Adviser provides personal advice to a retail client by any other means than through an SOA (e.g. oral advice), the client must be provided with certain information at the time the oral advice is provided.  The required information is what is referred to in the Act as a “statement of certain information”, but what we refer to as the “triple beef patties”, which consists of the following ingredients:

1. Remuneration information that might reasonably be capable of influencing the Adviser (and any of the persons in section 947B(2)(d) of the Act) in relation to advice provided to the client;
2. Relationships and other interests that exist between the Adviser (and any of the persons listed in section 947B(2)(e) of the Act) that might reasonably be capable of influencing the advice provided to the client, including certain relationships with product issuers; and
3. Product replacement information which includes the charges, loss of benefits (and other information listed in section 947D of the Act) that result from the recommended product changes.

Any Adviser would recognise that the triple beef patties above are, in fact, identical to the core ingredients of any SOA; quite the nutritious mouthful!

Turning on the oven timer – 5 days to give an SOA

As we mention above, the timer to give an SOA in a time critical situation starts ticking when the client instructs the Adviser of their requirement for an associated further financial service.  The Adviser then has 5 days generally, (see section 946C(3)(d)) from providing the further financial service to give the client an SOA.  Put simply, once the Adviser commences arranging or implementing the advice, they will have 5 days to cook up an SOA storm!

The content of an SOA in time critical situations does not differ to an SOA for non-urgent advice.  Here is the recipe of what all SOAs must contain:

1. The title “Statement of Advice”
2. A statement setting out the advice and the basis on which the advice was given
3. The name and details of the providing entity
4. The Licensee details
5. Your Representative details
6. A warning if advice is provided based on incomplete or inaccurate information
7. And… the hero ingredient, the “triple beef patties”, which we have “ground” above.

An Adviser must use their judgement regarding the level of detail required for any SOA, depending on the type of advice, as well as other factors; similar to the judgement one would use when sprinkling on salt and pepper “to taste”.  As importantly as one would neatly wrap up a takeaway burger, so too must an Adviser apply the same logic with ensuring SOAs are presented in a clear, concise, and effective manner.

What guidance does ASIC provide in relation to time critical advice, and is it possible to get an extension to provide a time critical advice SOA?

At the time of writing, ASIC has not released any dedicated regulatory guide on providing time critical advice, but RG 90 provides an SOA example for scaled advice.  ASIC also refer to “the delayed provision of SoAs in time-critical cases” in RG 175.174-175.

ASIC has previously issued relief instruments extending the 5-day period to give Advisers a longer lead time to provide their clients an SOA.  During the peak of Covid-19, ASIC extended the 5-day lead time in relation to the provision of SOAs (for Covid-19 related advice) giving Advisers up to 30 days to provide an SOA.  The relief ended on 15 October 2021.  To our knowledge, there is currently no such relief or process to apply for extensions for time critical advice SOAs.

When should the FSG be given?

The FSG must be given as soon as practicable after it becomes apparent that the financial service will be, or is likely to be, provided to the client.  Just as any welcoming restaurateur would give its potential diners a menu when they express an interest in dining, or ordering a meal, the same applies for an Adviser to present an FSG to a client before serving up any financial service.

There are similar provisions in the Act in relation to FSG-related disclosures for time critical cases, as is the case for time critical SOAs; and it doesn’t take a food connoisseur to see that similar flavours and core ingredients exist (particularly around remuneration and relationships) for FSG-related disclosures.  However, there are a few unique ingredients to time critical FSG-related disclosures and, unlike an SOA, the full FSG must be provided to the client within 5 days after being given the essentials, not 5 days from the time that a further financial service is provided.

The “take away” menu

An SOA is not always the means by which advice is provided.  When advice is not provided through an SOA, such as orally, the advice must have the “triple beef patty” accompaniment.  As long as the client does not require a further financial service immediately, and is provided with a statement of certain information (i.e., the remuneration, relationships and product replacement information as you would prepare for an SOA), the full SOA burger with “the lot” can then be served at a later date, as soon as practicably afterwards, but before any further financial service is provided.

Remember, it’s not usually the advice itself that sets off the 5-day turnaround for an Adviser to give a client a full SOA; rather, it’s the associated further financial service that arises from, or is in connection to, the advice provided.  Once your client instructs you to provide them with a further financial service, the 5-day oven timer for you to prepare the SOA begins.

Bon Appetit!

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Author: Clarisse Berenger (previously a Lawyer at Holley Nethercote)