COVID-19 - Advice-related Relief

Background

From 15 April 2020, ASIC Instrument 2020/355 (the ASIC Instrument) implements 3 temporary relief measures to help advisers provide timely financial product advice because of the adverse economic effects of COVID-19 (in this article referred to as COVID-19 Advice).

The ASIC Instrument does not state how long the relief will last.  ASIC’s present policy is to give 30 days’ notice before repealing exemptions and declarations in instruments.

3 key measures of relief are provided by the ASIC Instrument:

1. Urgent Advice
2. Early Release of Superannuation
3. Record of Advice (ROA) for an Existing Client

The summary below will help you understand how these measures may apply to your business.

Urgent Advice

An advice provider will be allowed 30 business days to provide a Statement of Advice (SOA) for time-critical COVID-19 Advice (instead of the usual 5 business days) if:

• the client expressly instructs the providing entity, and the providing entity reasonably considers, that the client requires the COVID-19 Advice on an urgent basis because of the adverse economic effects of COVID‑19. This means that advisers seeking to rely on this exemption will need to retain written evidence that the client initiated the instruction, and will need to have sufficient working papers and file notes to demonstrate that they engaged in reasonable consideration of the request and the need to act urgently before providing the advice; and
• where the COVID-19 Advice relates to a financial product subject to a cooling off period for return of the product — the providing entity gives the client a written statement explaining the cooling off rights and that the client may not receive the SOA until after the cooling off rights have expired. This written warning should be given when the COVID-19 Advice is provided. 

The provisions of section 946C(2) still apply.  That means if the SOA is not given to the client when the advice is provided (presumably the advice was verbal advice at this stage), the providing entity must at the time of providing the advice, give the client a “statement” that contains the information that would be required to be in a Statement of Advice by sections 947B(2)(d) and (e), or 947C(2)(e) and (f), as the case requires, and by 947D, if applicable.

The providing entity must give the client an SOA as soon as practicable after the COVID-19 Advice is provided, but in any event within 30 business days after the COVID-19 Advice is provided.  

Example:  An existing client requests life insurance cover due to reduced asset values which have created a shortfall of assets to cover liabilities if the client should die.  The client tells the adviser that the client requires this advice urgently because of the asset price crash which has occurred as a result of COVID-19.  The adviser will be able to provide time critical advice and rely on this exemption to allow 30 business days to provide the statement of advice, if at the time of giving advice the adviser provides a written statement to the client

• explaining the cooling off rights and that the client may not receive the SOA until after the cooling off rights have expired; and
• disclosing any actual or potential conflicts of interest, commissions and remuneration; and
• containing any necessary disclosures about financial product replacement advice.

Early Release of Superannuation measure

On 24 March 2020, legislation was passed allowing individuals affected by the COVID-19 pandemic to obtain up to $10,000 from their superannuation product or RSA product in the 2019-2020 financial year and a further $10,000 in the 2020-2021 financial year (COVID-19 early release scheme).

If a client requests advice regarding access to their superannuation under this measure, the ASIC Instrument provides: 

1. Registered Tax Agent Licensing Relief which exempts registered tax agents (who are neither licensees nor representatives of licensees) from the obligation to hold an AFS licence in order to give advice to their existing clients in relation to the COVID-19 early release scheme. If the registered tax agent is also a licensee or representative, this relief does not apply to them and the “Financial Adviser Relief” referred to below will apply. 

2. Financial Adviser Relief from the obligation to provide an SOA for COVID-19 Advice in relation to the early release of benefits in a client's superannuation on eligible ground provided that all requirements in the ASIC Instrument are satisfied. 

The ASIC Instrument specifies that “eligible ground” in relation to the early release of benefits in a superannuation product or an RSA product, means a ground referred to in: 

• subregulation 19B(1) of the Superannuation Industry (Supervision) Regulations 1994; or 

• subregulation 4.22B(1) of the Retirement Savings Accounts Regulations 1997.

both of which refer to the release of benefits on compassionate grounds.

For both the Registered Tax Agent Licensing Relief and the Financial Adviser Relief, the ASIC Instrument details specific requirements that must be satisfied including:

• the COVID-19 Advice must be from unsolicited contact (for example, no cold calling);
• the maximum fee that can be charged for the COVID-19 Advice is $300;
• an ROA must be kept (the content requirements of which are in the ASIC Instrument);
• the ROA must be given to the client when the COVID-19 Advice is provided, or as soon as practicable thereafter. It must be provided before any further financial service arising out of, or connected with, the COVID-19 Advice is provided; and
• disclosure must be made of any actual or potential conflicts of interest and commissions and remuneration that might reasonably be expected to be, or have been capable of, influencing the entity providing the COVID-19 Advice.

Example:  A client who has lost their job is seeking access to $10,000 from their super to assist them in meeting their mortgage repayments but they require some advice as to which super fund to withdraw from.  The client expressly states they require advice on an urgent basis.  There is no requirement for an SOA provided that the adviser charges less than $300 for the advice, makes the necessary disclosures at the time of giving advice, and keeps and provides an ROA to the client within the timeframes as stated.

ROA for an Existing Client

Where an existing client requires COVID-19 Advice, a temporary relief measure allows an ROA to be provided in 2 situations when an SOA would usually be required.

1. Situations where the existing client’s personal circumstances and the basis of the personal advice have changed significantly.
2. Advice practices may continue to provide timely personal advice to clients where the client is receiving personal advice from another financial adviser, for example, another financial adviser in the practice or another financial adviser authorised by the AFS licensee.

Under this measure an SOA does not have to be provided where all requirements detailed in the ASIC Instrument are satisfied:

1. the client must expressly instruct, and the providing entity must reasonably consider, that the personal advice is required because of the adverse economic effects of COVID‑19;
2. the client must be an existing client who was previously given an SOA by the providing entity (or an associated providing entity as defined in notional section 946B(18) of the ASIC Instrument). That means, where the “providing entity” is the licensee - any person who is an authorised representative of the licensee.  Where the “providing entity” is an authorised representative - the authorising licensee or any person who is an authorised representative of that licensee;
3. the COVID-19 Advice being provided must be in relation to one or more classes of financial product(s) in relation to which the client was previously given personal advice by the providing entity (or associated providing entity);
4. the providing entity must keep a record of the COVID-19 Advice, the content of which must meet the requirements detailed in the ASIC Instrument;
5. the providing entity must give this ROA to the client when the COVID-19 Advice is provided, or as soon as practicable after the COVID-19 Advice is provided. It must be provided before any further financial service is provided; and
6. when giving the COVID-19 Advice, the providing entity must disclose any actual or potential conflicts of interest, commissions and remuneration that might influence the providing entity in providing the COVID-19 Advice, and if applicable, any replacement financial product disclosures.

Example 1:  An existing client requests reweighting their superannuation account to remove all international equities exposure as they believe economic recovery will be much slower outside of Australia due to the extent of COVID-19 overseas.  The adviser or an ‘associated providing entity’ as defined in the ASIC Instrument has previously provided advice to the client in respect of the client’s superannuation.  There is no requirement to provide an SOA provided the adviser makes the necessary disclosures at the time of giving advice and keeps and provides an ROA to the client within the timeframes as stated.

Example 2:  If as above an existing client requests reweighting their superannuation portfolio, however, the adviser or an ‘associated providing entity’ has previously only provided advice in respect of the client’s investment accounts, then the adviser may not rely on this relief, as the advice being sought is in respect of a class of financial product in relation to which previous advice has not been provided.

Comment

The relief measures are limited, and we doubt will be of much value to advisers. 

Relief permitting the use of a Record of Advice rather than a Statement of Advice in certain circumstances may reduce the time and cost overhead associated with the preparation of advice documents thereby enabling advisers to more efficiently deal with higher volumes of client advice needs during this period.  Advisers relying on the relief measures allowing 30 business days to provide an SOA for time-critical COVID-19 Advice instead of the usual 5 business days should monitor their workflows carefully to ensure that sufficient resources are available to finalise advice documents within required timeframes.  

Date of article – May 2020

IMPORTANT INFORMATION

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