According to Peter Johnston, the executive director of the Association of Independently Owned Financial Professionals, “fair and reasonable adjustments” to relevant legislation are necessary to ease the burden on advisers.
“Politicians and ASIC need to understand that the advice community wants the ‘bad eggs’ removed more than anyone else and we will not protect them,” Mr Johnston said in a recent email.
“It is fruitless having a panel of academics who have not worked in our industry making critical decisions that [impact] on the practically of the industry and therefore the cost of advice to consumers.”
His solution is the creation of a panel of experienced advisers in conjunction with ASIC, which would meet on a regular basis to rejig the compliance regime.
One of the key issues the panel would tackle is statements of advice (SOA), Mr Johnston said.
“We badly need direction from ASIC on the composition SOA’s, that is the most vexed question in the industry,” Mr Johnston said.
“Currently we have a compliance regime dominated by lawyers creating 100 + page documents that clients seldom read and will more than likely not stand up in AFCA if problems occur.
“The Corporations Law states that an SOA must be concise and understandable, it is about time all stakeholders paid attention to the requirements of the law.”
Mr Johnston is confident that once this matter is addressed, along with other duplicated and impractical requirements, the cost of advice would drop by at least 50 per cent.
“That is good consumer policy,” Mr Johnston said.
ASIC should be forced to provide multiple examples of perfect SOA. Documents that can be easily duplicated for client needs. It has failed advisers. RG.175, the Bible for SOA’s is a very poorly produced document.
RG175 is not a bible for SOAs it is ASIC’s interpretation of the Best Interest Duty.
Kick out all those without degree or the minimum graduate diploma fp , and then wind back compliance to reasonable level and bang the industry moves to a profession, and clients receive affordable advice … problem. Solved . Win win. Not hard. Industry will quite frankly not change until this occurs.
Working in compliance the majority of unbelievably poor advice comes from degree qualified advisers – so, you’re way off.
Is that because the majority of advisers are now degree qualified? You will always get compliance issues, the point being made here is that the regulator and the public will be more comfortable winding back onerous requirements IF we are all degree qualified.
It’s because qualifications don’t really have a baring on advice quality. The degree standard solves one problem only – it stops the old occurrence of charlatans being qualified to give advice because they did an accelerated DFP course over 4 days.
25 years in this industry. Many of the characters in this game should be selling used cars or mobile phones at the local market instead they offer client financial advice on the back of a licence they sourced from weatbix packet. I’m embarrassed that I rub shoulders with them. The only way to get them out is to make education mandatory. The fact people make excuses for these people is mind boggling. This is not a respected industry and will NOT be one until they are swept out!
Again agree- 30 + yeas in financial services. it was clear years ago that education standards not new regs would help cull the the industry of the bad eggs.
Disappointing that after having done all the degree requirement – these are now being wound back because some of the lethargic few find it onerous – no wonder than new players don’t want to join the industry as there is no room for them.
Excellent idea- in fact this what we see in the medical profession- doctors deal with far more complex issues (even GPs) and don’t give us a tome of written dox- they are qualified and hence entrusted to give the right advice.
The reason SoAs are so long and complicated is to try and defend licensees and advisers against regulatory persecution by ASIC and AFCA. If you ask ASIC or AFCA what needs to be in any given SoA their (internal) response will be “whatever you haven’t included – that’s how we will persecute you”.
As long as biased bureaucrats control ASIC and AFCA, and those organisations regulate financial advice, consumers will never have access to affordable professional advice.
Not sure you are correct. It is licensees and lawyers who cause the SoA problems. If you read ASIC’s guidance on SoAs (eg, Limited Advice SoA) you will see what ASIC expects is clear and concise SoAs. Even they cannot understand why an SoA has to be so long and full of inconsequential rubbish.
The problem is on one hand ASIC say the advice should be short and to the point, but if it came to a client v’s an adviser, ASIC or AFCA or whoever else is in charge would say that we have missed crucial bits of information.
The irony is that even if you put everything in, the client could still claim they didn’t know.
Have you asked why the licensees and lawyers make the SoA so long and complicated – to protect themselves from ASIC and AFCA.
It’s fine that ASIC say they want them to be simple, but their actions when looking at issues don’t support it.
I’ve heard ASIC say that it is all the licensee’s fault. The issue is that the licensee’s are acting upon ASIC’s actions and not their words. Unfortunately actions count more than press releases.
ASIC can provide all the guidance and examples of shorter advice documents they like. A major driver of the licensee compliance regime is AFCA determinations. AFCA is heavily consumer focussed. They hunt for opportunities to compensate clients for loss. There is no jeopardy to clients pursuing advisers. Adviser wear blame when products fail that the adviser had the most tenuous links to. Advisers can’t follow client instructions to assist in anything eg structure set up without taking full responsibility for any foolish investment the client may subsequently use that structure for. Adviser can’t request courts review determinations but client’s can. The usual rules of evidence don’t apply and the Authority is heavily on the consumers side. They are not even bound by their own precedents. This is THE biggest driver of the cost of advice. AFCA is important as is consumer redress against poor advice but the balance is wrong. Consumers have to be allowed to take some responsibility for their own investment choices. Especially when the adviser did not recommend or introduce or get paid by that investment. Until this happens advice documents will not get any smaller.
The second issue is the mountain of compliance activities that advisers undertake to onboard and maintain a new client. Fee disclosure statements are out of control. On rare occasions with mulpiple old product paying fees they can be 100 pages for a client annually. They are regular 10 or more. This achieves nothing. A simple one page statement signed and acknowledged wuld be far more practical. Add this to anti-money laundering, Target market determinations, FSG maintenance, etc etc etc. Massive rationalisation has to occur as all this adds and adds to cost and looking only at one aspect is not going to solve the issue. Is a money Launderer really going to use a financial planner?? With all the other information gathering required?? What is this forest of photocopying and form filling out achieving?? etc etc
you missed out the PDS for each product……….
If you are producing 100 page FDS then I suggest getting a new compliance regime – because that is definitely not right. I have never seen a FDS more than 3-4 pages at the very most.
Which is 2-3 pages longer than they should be
Can you tell me how many clients have won at AFCA and the reason they won was because the SoA was not 100 pages long?. AFCA rules in favour of a client where the advice was not in the client’s best interest – not the length or complexity of an SoA. AFCA will also rule in a client’s favor because the SoA was not written based on the client’s capacity to understand the advice in the SoA – it was a template – it was full of stuff that does not demonstrate the advice was in the clients best interest (just fill to justify the cost of the SoA). An adviser must be able to demonstrate the advice was appropriate. ASIC has clearly stated all that is required is file notes, working papers etc be retained by the adviser and those documents support the advice in the ‘clear and concise’ SoA . I think it is about time advisers actually read the RGs and Guidance published by ASIC and stop listening to those who just want to whine and complain – generally those advisers have no idea.
100% Agree – SOA is the focus and safe harbour steps as the critical issue sitting behind that.
We spend countless hours going over the same research over and over for each client to compare products that we generally know in detail, quoting like for like etc, just because a client already has it, no other reason. Safe harbour is excellent in theory but the time spent to accommodate its requirements (just to comply) is hundreds of often wasted hours every year. The overlay of Best Interest Duty of itself should allow at least some flexibility as professionals, as to what and why we have recommended a course of action in the clients best interest without being conscripted to a fixed process and fixed SOA disclosure, that may or may not add any value on a case by case basis.
Agreed 100%. The countless hours spent comparing and contrasting and quoting comparative products (just because the client has them now – no other reason) regardless of context or need, for every single client every time, regardless of whether we know those products are poor, and generally would recommend replace them almost every day of every week on quality basis alone. The seven safe harbour steps are excellent in theory – in practice parts of it are exhausting and very costly. (Not to mention at times a little soul destroying that we must repeatedly spend the time doing the same task over and over for no reason other than compliance – not client benefit)
We need to remove bad eggs ASAP and the first place to look is the big licensees. These big players have corrupted the AFA and FPA via funding which has, in turn, turned these institutions from looking out for individual advisers to advocating for their big business benefactors.
I would much rather the government work on fixing the day to day compliance red tape burden such as this, rather than think they are solving everything by winding back the education requirements years after that horse has bolted.
The difficulty with this approach, which I completely agree with, is that it will involve ASIC and related entities actually doing something. The change in education is simply pushing back the day of destruction for financial planning because with the current compliance regime no one outside the top 10% of investors in Australia can afford advice.
It’s unfortunate that it’s still not understood by these individuals that in the absence of reducing documentation requirements associated with safeharbour, changes to the SoA in any way will not help the planner deliver cheaper advice…