Former financial planner and Asendium chief executive Scott Miller says there are two schools of thought about statements of advice (SOAs) among advisers.
“One is that the SOA is the value delivered. The other is that it is a barrier to the advice delivered,” Mr Miller told ifa.
“Planners who see SOAs as a barrier will welcome the recommendation to get rid of them. Those who see SOAs as a value will see the recommendation as an opportunity to provide advice using a more engaging, less legalistic document,” he said.
However, when it comes to licensees who authorise financial advisers, Mr Miller believes it is a very different story.
“Licensees are not doing away with SOAs,” he said. “Every licensee that I have spoken to, from the largest dealer groups to the smallest AFSLs, have said they are keeping SOAs. Even if the Quality of Advice Review does away with them, licensees are still of the belief that they should be stored on file.”
Under recommendation nine of the Quality of Advice Review final report, Michelle Levy stated that 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.
However, little information has been provided about what these records might look like.
“An adequate record right now in the eyes of the planner, the licensee, and the regulator is an SOA, which is a collation of the fact find, research and recommendations in one document,” Mr Miller said.
“Licensees will still insist that their planners create an SOA to keep on file. But you might also see the engagement with the client via a video SOA or a PowerPoint or a letter summarising the advice, which will be more welcomed by the consumer.”
Others have suggested that the loss of SOAs could create issues for advisers looking for professional indemnity (PI) insurance.
If a client experiences financial loss due to following the advice outlined in the SOA, they may seek compensation from the financial planner or adviser who provided the advice. To safeguard against such claims of professional negligence or breach of duty, personal indemnity insurance offers financial protection to the planner or adviser.
GSA Insurance Brokers head of professional and financial lines, Ryan Neary, told ifa that the major concern for insurers in removing or reducing SOAs is that they contribute a significant part of the defence for insurers in the event of a claim.
Namely, SOAs play a significant role in an adviser’s defensive strategy. This is because a well-documented SOA can provide evidence that the adviser provided appropriate advice to their client and can help demonstrate that the adviser fulfilled their duty of care.
“If SOAs were removed in their entirety, insurers would lose a significant element of their defensive strategy on behalf of the adviser, which would cause them concern,” Mr Neary said.
If SOA are removed as advised by levy. The weight of commercial pragmatism, in time will overcome everyone’s enthusiasm to keep doing SOA’s .
If you actually read the SOA requirements in the reg guide it’s pretty common sense. Sadly licensees and the lawyers need to work towards the lowest common denominators. My bet is that we end up with new guidelines for simpler advice documents which look exactly like the current guidelines.
Unless the licensee is checking every piece of advice before it is delivered then requiring soas is a waste of time if not required by law.
I keep banging on about this but a retail friendly and complying SOA is critical in ensuring both the advisor and client are protected. Remove it and we as an industry are in for a world of hurt.
It isn’t a question of whether licensees will require an SOA or not. Of course they will require some information on why particular advice was give, but it won’t need to be in the form of a 50 page SOA. The same as a doctor has to take some notes, but they don’t need a lengthy tome explaining why they recommended what they did. Likwise with clients, I will still be providing them with a summary of the advice, but it won’t be a 50 page SOA that contains so much information that their eyes glaze over.The quicker the prescriptive nature of SOAs is removed the better.
As much as we might wish it was not the case, the vast majority of SoAs go unread. While reducing their size and complexity might improve the odds, if most people aren’t reading them, we have to find more effective ways of communicating our advice.
The only thing to change will be the name…QoAR covers the Corporations Act. SoA’s are written for about 18 other pieces of legislation, everything from Privacy Laws to AFCA determinations. This suggestion is smoke and mirrows stuff, really like offering a free Car for every Australian….it aint going to happen….
What is more important is the underlying research being used to support client recommendations. I personally agree with the provision of an SOA or like document and the obligation to conduct research to support advice recommendations. The problem is that it is very difficult to provide scoped advice and maintain the standards required of FASEA. Surely we can provide advice that achieves BID without the need for excessive regulation making advice unattainable for all but a few?
“If SOAs were removed in their entirety, insurers would lose a significant element of their defensive strategy on behalf of the adviser, which would cause them concern,”, This is exactly my initial reaction to the proposal. Yes, these documents are cumbersome and not client-friendly, but similar evidence of informing the client, as well as file notes to back that up, will still be necessary to avoid the “He said, she said” situation in front of AFCA.
This is precisely why dealer groups need to be removed from financial advice altogether. They are a relic of the past and are holding the profession back.
“Licensees are not doing away with SOAs,” he said. “Every licensee that I have spoken to, from the largest dealer groups to the smallest AFSLs, have said they are keeping SOAs. Even if the Quality of Advice Review does away with
them, licensees are still of the belief that they should be stored on file.”
The more I read about what Minister Jones is saying, and now this above. The more I can see nothing changing in FP space. And the Super funds having a field day.
Then what is the point of any of it ?
A good reason to look at self licensing. Why continue to put together SOA’s that will probably cost your business $100k
pa for 25 years just to hold on file for that 1 claim you might or might not have in your career that may cost you a once off figure of $100k?
I think it would be foolish for any adviser to provide advice without a document outlining the advice and an authority to proceed. Would be great to reduce the size and make it more succinct but I will still be providing an advice document and having it signed off.
Lengthy SOA’s have become a burden to advisers and the industry. If licensees make it mandatory, more advisers will just become self-licenced and make their own call. It has been proven that in a court of law, good file notes are just as relevant & maybe superior in an advisers defence, compared with SOA’s which are not personalised anyway.
If licensees take this approach it will simply be one more reason why they will not be relevant to the future of advice. I already struggle to understand how they survive with APLs getting bigger and broader by the day
As we should. Can you imagine AFCA or ASIC reviewing a file with no SOA???
Goodbye Licensees