Consultant and auditor Frank Smith told ifa a number of law firms are targeting the financial advice sector for litigation revenue – including via TV advertising in Victoria – meaning that getting SOAs right has never been more important.
“The lawyers are saying there is a need for longer SOAs, but there’s not,” said Mr Smith, who also heads the AIOFP’s compliance service and has been an expert witness in a number of legal matters involving advisers.
“In the Corporations Act, it addresses the level of detail that should go into an SOA – and it says the level of detail should be what a reasonable person would require to act on the intelligence.
“So the argument is shorter SOAs, not longer, because long SOAs are a barrister’s dream, a lawyer’s dream – it gives them more to work with.”
The compliance expert also warned against automated and template-based SOAs, which he said are being offered by all of the major financial services software providers.
“These [automated SOAs] are very dangerous,” he said. “The best SOAs are those written by the adviser, because they are the only one that was in the room with the client.
“The length and style of an SOA should be determined by the client and should be peppered with the client’s own turn of phrase to assist recollection.
Mr Smith said a “compliance industry” has emerged alongside growing regulation of the financial services sector, and that many stakeholders, including members of the “legal fraternity”, have a vested interest in “making things more complex so they can come to the rescue”.
In addition, Mr Smith said there are a number of common misconceptions about the purpose and nature of SOAs, as stipulated by relevant regulations.
“According to ASIC, an SOA is not a compliance document, it is not a document to protect you against litigation – although I say if you get it’s clear and concise it can do that – it is not a place to relay all information about the client and, finally, it is not a place for educational material,” he said.
Frank,you and I both know that the issue is you are guilty until proven innocent and if you rely on peoples memories who do you think FOS or the courts will give the benefit of the doubt to. If all advisers were immaculate keepers of records of meetings and discussions then no problem. But they aren’t. Additionally who wears most of the damage here if something goes wrong. The licensee that’s who. All we licensees are doing is managing our risk. Some automation is necessary to create efficiency and ensure all areas are covered. In my experience when it comes to money and a claim many clients memories are lacking.
Its a bit sad that our industry participants still dont have a clear understanding of these documents – too many interpretations and a regulator who is not helping. Whenever the term “reasonable person” is used in law, it is open to argument by unreasonable people….judged by people outside of the industry and thereby hangs the advisor. Unless ASIC make a definitive statement of what constitutes a good SOA. And I suspect that will never happen and compliance teams dont want it to happen.
Seriously, your answer is both humorous (very) and spot on.
It’s not the length but what you do with it that matters.
To suggest that a “long SOA” is a “lawyer’s dream” seriously underestimates the imaginative, quixotic and surrealist dreams of most lawyers – seriously, have you forgotten FOFA already?
I’m pretty sure we’ve had this discussion before. One would think that an adviser’s compliance team, which is usually packed full of lawyers would be able to interpret the regulatory acts. Maybe not.