Levy says industry ‘overstating value’ AFCA, ASIC place on SOAs

Among the recommendations in the Quality of Advice Review (QAR) final report, QAR reviewer Michelle Levy said the removal of statements of advice (SOAs) would increase flexibility and reduce compliance costs.

Under recommendation nine, Ms Levy said: “The requirement to provide a statement of advice (or record of advice) should be replaced with the requirement for providers of personal advice to retail clients to maintain complete records of the advice provided and to provide written advice on request by the client.

“Clients should be asked whether they would like written advice before or at the time the advice is provided and a request for written advice is required to be made before, or at the time the advice is provided.”

However, the industry is divided on the impacts of the removal, while most agree current SOAs are too long and legalistic, concerns have surfaced that removing SOAs could leave clients vulnerable to poor advice and unscrupulous advisers.

Speaking at the Stockbrokers Conference last week, QAR lead Michelle Levy suggested advisers may be assigning excessive significance to the ongoing debate.

“People are overstating the value that AFCA and ASIC see in lengthy statements of advice,” Ms Levy said.

“ASIC has been pleading with the industry for a long time to make statements of advice much shorter and clearer. AFCA have told me in consultation that they are suspicious of the accuracy of SOAs.

“So I’m not convinced either of them want lengthy documents. They just want some accurate evidence of advice and recommendations given, it’s not all the stuff that goes with it. How you record that is something that should be left up to the industry.”

Last month, addressing the Financial Advice Association Australia (FAAA) Roadshow in Sydney, Shail Singh, the newly appointed lead ombudsman for investments and advice at AFCA, said while SOAs are important, overly long documents can reduce clarity.

“If you get a 120-page version of the SOA, it can be very hard to understand what the advice was and certainly to get to the key point of the informed consent by the consumer to understand what is being recommended to them, and the risks involved,” Mr Singh said.

“Records of advice, not records of advice in the legislative sense, but some sort of record of what was stated is important and will continue to be important when we look at the steps.”

He added that all of the other material included in the file beyond the SOA can also be just as important.

“The file notes, we talk about that all the time, all the other records of what happened to get an understanding of [the advice],” Mr Singh said.

“I think it is important that the SOA is done properly, and I think it will be interesting to see if this proposal is put into legislation, how the profession responds to it. But ultimately, if it did go to AFCA, we’re going to have to understand what was said to the consumer, and what they understood of that particular advice.”

Mr Singh had previously stated that “documentation is important”, but any decision was up to the government.

BT head of financial literacy and advocacy Bryan Ashenden told ifa earlier that the success of the QAR reforms will ultimately depend on how the removal of the SOA requirement is implemented.

“We need to keep the ‘what’ to a minimum from a legislative perspective — but importantly, get it right and agree in terms of that minimum content the first time we legislate the change, so we don’t have amendment upon amendment upon amendment,” Mr Ashenden said.

“The ‘how’ is also important, and perhaps should be less prescriptive — so whether a written document like today, or a PowerPoint presentation, a video or animated presentation. Let’s try to allow for flexibility and innovation in this regard and something that is fit for purpose for the client.”