Rockwell Olivier managing principal Peter Bobbin told ifa it is crucial the financial services industry understands there are two compliance standards to meet under the law – one regulatory and the other obligation-based – and that both need to be met to avoid calamities.
Four years before the collapse of Storm Financial, Mr Bobbin was asked to review the company’s statement of advice (SOA) process, which was “very compliant” but highly unethical, he said.
“What Storm highlighted to us, and this still exists today, is that you can be regulatory compliant yet the customer is still able to sue for negligence,” Mr Bobbin said. “Why? Because they fundamentally did not meet their duty to the client.”
The 110-page Storm Financial SOA ticked all the boxes, asked for the client to initial each page and from a pure compliance point of view was “magnificently correct”, Mr Bobbin said. “But was it right and ethical for the client? Absolutely not.”
In order to avoid similar occurrences, Mr Bobbin suggests that financial advisers keep SOAs short – between six and 20 pages – which is more likely to achieve communication, as opposed to telling.
“You can tell somebody or you can communicate – communicating is the objective,” he said. “The most effective advice I can give is that the SOA should be compelling, precise and brought to attention – that is the most appropriate SOA delivery objective.”
The comments follow the news that Mr Bobbin has partnered with My Dealer Services to provide compliance review services to members of the Association of Independently Owned Financial Professionals.
ASIC believe in prescriptive behavour,as per circulars,but without ever spelling out their requirements.
The AFSL lawyers try to cover ALL bases to justify fees.. Result, a 30 page risk SOA that repeats info at least twice, that clients do not understand because there are tables everywhere and a “standard ” SOA does not work..
Theres no such thing as a safe SOA in my non-legal view, and you cannot legislate ethical behaviour. If you could, a lot of tax agents would get the boot !
FOFA is just a codification of common law principles, at the behest of the ISN.to slow up the funds outfall to SMSF.
In the meantime, how can direct selling of dodgy life policies ever meet FOFA requirements. or industry fund advice? rules.
The only real test as to whether advice complies with FOFA will be a Court case, not an opinion from the regulator..
We need an ASIC which is under Ministerial conrol.
Pretty much illustrates what a futile exercise SOAs are when you read Ruth’s comments. A detailed file note or strategy paper explaining objectives and the risk involved would be far more valuable and easier to understand for all. Doctor’s are professional aren’t they…do you ever get an SOA from the doctor after a visit? No…he makes file notes at the time of consultation and spends more time on consultation and diagnosis. Something to be said about that…financial planning is obsessed with compliant SOAs and little else. Nothing has changed, same old risk profiling methods, same old “balanced, conservative, growth” stuff that eventually leads to grief when markets fall. One would have thought we may have learned something from the GFC…clearly not, except how to waste more time for no result.
As a Stormie our SOA was a generic document which said nothing about how much or where money was to be invested. We were told ‘it is a legal requirement to show you this’ they read through it… Very boring …and we signed and dated the back page. Only when all the investments were made were we given our SOA and told that ‘this is to show where your money has been invested, take it home, read it and sign every page’
The back page was the page that we had signed and dated 3 months before. I had no idea that we had to get a SOA as this was our first financial advisor.
In Peter’s defence, the Storm SoAs formally (if not magnificently) complied with the law in that every legislative or regulatory requirement was addressed -they even included extracts from ASIC policies. But the formal compliance disguised the substantive failure of the advisers.
An SoA is simply the written record of your advice and advice process. An SoA should be short, clear and easy to understand; but this is more often the exception than the rule.
Advice documents should be like Lego – they should be modular and distinct but integrate together to form something compelling and beautiful.
(BTW It’s not lawyers that oppose short SoA, in my experience it’s the Licensees and Advisers that find comfort in the expansive, dense and heavily disclaimed documents.)
Come on Peter B how can an SOA be magnificently compliant without having appropriate advice – that what the compliance checkers and the regulator missed. They ticked the boxes and didn’t look at the requirement for appropriate advice which was there then as much as it is today. In the end we’d all love shorter SOA’s – I’d love corporate lawyers to show some agreement with you here !
Compliance is necessary but is incidental to advice. Advice is about explaining what can be complex ideas, simply and clearly and then making a judgment call about whether something is likely to suit the client. Ethics is about (for the adviser) being completely transparent while for the client it assumes that and then is about their beliefs and values. This is all very simple. What I find interesting is that advisers are using SOAs that they don’t like and don’t believe are best for the client. THAT is unethical in my view and I would move to where you are able to write SOAs that you DO believe are correct, or better still, do what I have done and get your own AFSL and do things EXACTLY as you know to be best.
If you have time, look at ASIC’s new scaled advice SOA example…15 pages…but also have a think about how your compliance audit would treat this document. I’m pretty sure mine would want an additional 15 pages of disclaimers, disclosures, a market exposure comparison, lots of bullet points for everything. In fact our dealer SOAs look like they’ve been target practice for machine guns with the amount of bullet points. There are more headings and sub-headings than actual meaningful content.
Storm was a clear example of unethical behaviour driven purely by greed. Any planner that had half a brain could see this trend and it was obvious to all that one strategy did not fit all- there in basic form is the ethical issue. Hopefully, all the COWBOYS are gone or under control at least. Following the professional bodies and the codes clearly shown, if enforced “should” be more than adequate. As for SOAs being short, love the idea but the dealer group is the master of this one but the words precise, compelling and communicated well are well noted