In the advice industry’s bid to service more Australians at lower costs, Hayley Knight, director of Contract Paraplanning Services, has said that SOAs are not the “silver bullet” that the industry may be hoping for.
“There seems to be this notion that eliminating the SOA will solve all of our problems, yet based on research, the document costs, on average, less than 10 per cent of the advice fee,” Ms Knight told ifa.
“In reality, we already have an ASIC SOA example, which is nine pages long, yet the average SOA still remains at 50-plus pages long.
“So, I don’t believe that scrapping the SOA will have any substantial effect on the cost to produce advice. Licensees and insurers will still want to cover their bases, and that will mean a lot of paperwork.”
Last week, Financial Advice Association Australia (FAAA) chief executive Sarah Abood said that amending SOAs can alleviate the scarcity of affordable advice left by the banks’ exit from the financial advice space, enabling firms to serve a broader market.
“No one has effectively been operating in the simple, low-cost end since the banks exited advice, so it’s a segment of the market that is not being serviced at all. This [changes to SOAs alongside other QAR measures] would enable businesses to start serving that segment of the market,” Ms Abood told ifa.
In comparison, Ms Knight argued that the industry’s attention should be focused elsewhere.
“Cutting the cost to service a client will come from a combination of efficiencies, but I believe the attention should be focused on minimising the compliance burden,” Ms Knight explained.
“The SOA is an easy target when it comes to reducing cost, but in reality, savings are more likely to be minimal. The real problem, as I see it, are the sky-high licensing fees and the costs just to remain compliant.”
Expanding on this in a LinkedIn post last week, Ms Knight reasoned that with an average cost of service being between $5,000 and $6,000, alongside the average SOA fee ranging from $400 to $600, SOAs constitute approximately 10 per cent of the overall cost incurred in servicing a client.
“Even if you could completely eliminate [SOAs], which is highly unlikely … at best, you’re going to be reducing your costs by 10 per cent,” she said.
“Which is great, but is it the silver bullet? I don’t think so.”
What is more likely, Ms Knight deduced, is that cost cuts would be even less than 10 per cent, assuming that SOAs aren’t entirely eliminated.
“I feel like there’s so much focus on reducing this SOA when really we need to be looking at all the other little things around it, like the excess in documentation, red tape, compliance, and the levels that advisers need to go to make sure that they’re proving that they know their client,” she concluded.
Earlier this month, in announcing the first tranche of legislation related to the Quality of Advice Review (QAR), the Minister for Financial Services, Stephen Jones, said his red tape reduction agenda will make a “meaningful” difference in freeing advisers from the regulatory purgatory they’ve endured for years.
However, noticeably absent was recommendation nine, advocating for the substitution of the lengthy and legalistic SOAs with a financial advice record for consumers that is more fit for purpose.
Regarding the absence of SOAs from the first tranche of legislation, Ms Abood said that while she is disappointed, it’s crucial to view this as a “delay and not a no”. She also revealed that confidential discussions about the revamped SOAs are underway behind closed doors.
“Every time you think you have something in isolation, like your statements of advice, you realise that the driver of that is the safe harbour test and the best interest duty, which we were always going to deal with in tranche two, and we can’t do one without the other,” Mr Jones said.
“We’re pretty sure we know what we want to do, but we haven’t got all [the] detail consulted. In short, every time you pick at this, you find there’s an interconnected bit that needs to be dealt with.”
FDS statements are the biggest nightmare and juggling/ co-ordinating them with client reviews. If we got rid of “renewal periods” and “anniversary dates” I could take on a significant more number of clients.
But not the silver bullet, no. Professional judgement group pi through associations and individual registration is. Then self regulation like all other professions. B
It is a start, and a much bigger one than the draft legislation
Hayley is right that removing SoAs will not make a huge cost difference. It may remove some of the overhead of complying with a prescribed format for client documents, but advisers, licensees and PI insurers still need an enormous amount of documentation and processes to defend against potential ASIC and AFCA persecution.
QAR (if it is ever delivered) will be a welcome but minor improvement. To really improve things for consumers there needs to be a complete overhaul of the entrenched bias against licensed advisers by ASIC and AFCA. The honest majority of licensed advisers are being perpetually persecuted for the behaviour of a minority.
If QAR doesn’t kill off SOA’s, tech will soon replace paraplanners anyway. Let’s be honest, it is largely a matter of cutting and pasting, and running the odd projection based on the brief from a financial planner. As soon as AI is able to handle the brief, and produce a compliant document, paraplanners will be gone.
With some luck, many of them will upskill and become financial planners.
It’s in the works… although someone needs to enter in the relevant data sets for an AI or something like that to give you a compliant and accurate advice document.
Ms Knight may be a little biased! Very few planners are paying between $400 -$600 per SOA unless they are outsourcing, does Ms knight also not value the time that it takes to put the paraplanning request form together, check the SOA, amend the SOA etc etc?
Cost to serve and fees charged are also two different things. The average upfront fee is around $3500 and average SOA fee would be closer to $1000, which is more like 30%
I am all for removing or massively lightening the regulatory requirements for SoA – to make a generational difference, eliminate afsl have individual registration like other professions and then group PI Cover. This will reduce EACH auth rep costs by 30-50k PER ADVISER
I think Hayley Knight is a little blinded by her own bias here. It’s not just the time involved in producing the SOA document itself, it’s all the additional background info that needs to be on the client file to substantiate what goes into the SOA. Remove BID and the licensees and PI insurers will relax when it comes to the overall compliance picture. We should be moving to a scenario where an SOA of any kind is only needed for brand new initial advice. No ROA document of any kind, ever. From there your file notes and email trails should be sufficient to create a file that would be defendable in court. We won’t get that from S. Jones, but that should be the aim…..every other profession relies on professional judgement, why can’t we. On a side note, if you’re an Adviser in a large licensee, time to get out, they are the one’s who will try to cater to lowest common denominator and stick to the old rule set.
I pay somewhere close to 40k per annum in licensee fees and I only run a small boutique firm. If you want a silver bullet then maybe you look at what adviser’s highest cost is and look at reducing that.
This is our Number 1 cost and I get two useless PD days for it.
To engage a new client, we charge a fee for the preparation of the SoA and consequent implementation of recommendations that is usually the equivalent of the first year’s ongoing service fee. From conversations with other advisers, this is failry typical. Even if the reduction or removal of the obligation to provide a SoA halves that cost, it will save every new client thousands. Not sure where Ms Knight did her research!
Why would it halve the cost?
The first tranche of draft legislation was so non-impactful and harmful, that the advisers I have spoken to are/need to increase their costs and have lost all enthusiasm. There’s a feeling of not being rewarded for staying in when the easy and more profitable option was to jump ship post RC. Hayley makes a sound point, more needs to be done for an efficiency frontier to be reached in policy change, in the interim maybe don’t down-talk positive change. Even if micro to some, even though it does likely affect your business, albeit not holistic at least it’s something and more progress than what has happened for the past decade.
How conflicted, why on earth would someone who clearly benefits from SoAs remaining, as a business model, have an insight to costs to deliver for the profession. The beauty of reform is that the changes will allow operating models that don’t presently exist or don’t simply rely on reducing risk by being a sausage factory of “efficiencies” i.e. recommending the same thing over and over. I think its past due conflicted voices keep muddying any chance of change. This is the kind of bs which has diluted impact and allowed the government to say oh they can’t make their mind up its too hard so we’ll maintain the status quo or do a band-aid. Wouldn’t it be great for both Australians and clients that as a profession we embraced the QoAR recommendations without everything being through the lens of self-interest?