Prepared by Peter Hagias.
In speaking to accounting firms across the nation about their compliance obligations we have identified some common trends and misconceptions which appear to be consistent throughout the accounting industry. Some of these compliance gaps are alarming, and would almost certainly amount to significant breaches, which require reporting to ASIC. The key areas of concern were:
- Lack of knowledge of the best interests’ duty and the requirement for all advice to satisfy this duty (i.e. by complying with the safe harbour provisions). This includes identifying the client’s relevant circumstances and needs, as well as identifying and investigating alternative products that might suit the client’s needs. Advice that is tax driven will usually not meet the best interests duty. Penalties apply to the licensee and authorised representatives if they fail to comply with the best interests duty. Its significant.
- Factual information is being used as an alternative to providing advice. Factual information can’t be presented in a way which implies that one option is clearly superior – that will amount to financial advice. Consider what the client would think if you are giving factual information – they would likely consider it to be a recommendation. Use with caution.
- Every staff member needs to know what a breach is, even if they aren’t RG 146 compliant. Non RG 146 staff can be in breach of the licensee’s obligations. Significant breaches need to be reported to ASIC, and penalties apply for failure to report.
- Tax advice that includes a recommendation with respect to a SMSF is financial advice that needs to be provided by an RG146 adviser and documented in an SOA. There are no ways around it.
- SOAs don’t need to be long, but must contain enough information so that the client can make a decision about whether to follow the advice.
- ROAs appear to be often used incorrectly. ROAs can only be used if an SOA has been provided to a client, and then only if the basis of advice in the ROA is not significantly different to that in the SOA and the client’s circumstances at the date of the ROA are not significantly different to that at the date of the SOA. Key is in determining what significantly different is – it’s not defined by legislation, and very grey. The licensee’s judgment is required in making that call.
- Tax planning letters and other documentation provided to clients should be reviewed to ensure that no inadvertent advice is being provided.