Last week, ifa published an article titled ‘Abolish the SoA’ by David Huggins of Huggins Legal.
For an article primarily concerned with the managing and disclosure of conflicts of interest, David has failed to address his own conflict of interest; not that his firm “specialises in financial services litigation”, but that it indeed specialises in litigation against financial advisers.
To suggest that a financial adviser should provide advice to a consumer without explicit disclaimers and that they should simply rely on “an obligation to form their own view” is absurd.
It is nonsensical for a lawyer to suggest that any professional not have their clients sign a document acknowledging the risks involved and disclaiming or indemnifying that professional from future litigation. One would safely assume that lawyers themselves do not simply waltz into court on a handshake agreement and an understanding that if something goes wrong, the client will be okay with it.
I will not argue the fact that conflicts of interest within the financial advice sector are often poorly understood by consumers, but abolishing the main source of education on this issue and instead relying on some sort of lofty sense of personal judgement is perverse and serves no one except opportunistic litigators.
The question then remains: how do we improve the quality of advice and advice documents without exposing advisers to even more legal risk than they currently face? I would propose two immediate improvements:
- Increased ability to record extreme details of advice outside of a formal SoA; and
- Removal of approved product lists (APLs) in their current form.
The level of inane detail present in the vast majority of SoAs detracts from the advice itself and increases the chance a client will gloss over important details.
I do not think any individual would make a decision about their financial future based on whether they are 2.06 per cent overweight in domestic fixed interest, or that one product has a 0.02 per cent operational risk reserve and another has none.
These silly details impair an individual’s ability to judge advice on its merits, including whether they think their adviser has been unduly affected by the ownership or other offerings of their licensee.
I’m not suggesting that these intricate details be neglected entirely. Research must still take place and be properly recorded, but it should not be present in the middle of an advice document and would instead be better placed in a supplementary that could be delved into if required.
APLs should not exist in their current form. It is unconscionable for a licensee to prevent or impair their advisers from recommending legitimate and common products like TAL or ClearView. Total removal of APLs is not a solution, nor is the government’s weak attempt to mandate larger APLs. I don’t pretend to have a solution to this issue, but it is a real concern and a stain on the entire industry.
These basic steps are not without their hurdles.
It is unlikely ASIC will support providing less paperwork to consumers. Their recent attempt at a benchmark risk-only SoA proves that they are completely out of touch with the industry and care more about punishing wrongdoings than preventing them.
Institutions have millions of dollars invested in their vertical distribution channels and will fight tooth and nail to protect them, with huge funding available to support their cause.
In the end it comes down to licencees and individual practices that are willing and able to improve the quality of their advice delivery and gradually increase their market share. The easiest way to enhance that advice delivery is with a transparent, modern and professional statement of advice.
Nick Topham is founder and director of Clique Paraplanning. He completely discloses his interest in maintaining the Statement of Advice as the primary source of financial advice documentation.
This industry is so ridiculous. It is pathetic to see all you so called advisers mauling eachother over the years trying to see who can be the holiest and the most educated or course qualified. Just an embarrassing circus I’m ashamed to be associated with. Thank god i don’t need to be an adviser post this ridiculous exam and title witch hunt. I might just do pro bono work as a community service to all the poor innocent victims of “fee for service” and crucify planners charging multi thousand dollar agreements to those that not only do not need it but show it was not in their best interest.
This circus is just laughable.
i’d take your advice just so long as i can blame you 5 years down the track when things go wrong. You should have a go at personal trainers whilst you’re there, and any other coaching/style industry that involves more than a once off transaction. Regardless it will be good to see you go me thinks.
when you go off on a rant on a totally unrelated subject it’s time to get some help…or take some time out.
What a suprise, “Nick Topham, founder and director of Clique Paraplanning” wants to keep his bread and butter, the SoA! Send him out to sit in front of clients and ask what’s really important to them and I’m sure he’d hold a different view. The last thing they want is more paper to read and store. 4 pages at most required for a risk SoA. 3 columns as suggested here by ‘Gerry’ is all that’s needed.
I don’t propose to respond to personal abuse (about being opportunistic), spurious allegations about conflicts of interest (made by a person that I have never met or have ever heard of) or peculiar statements about what lawyers do when they waltz into Court. I did however, want to respond to the comment about advisers having an obligation to form their own view about conflicts of interest – disclosing the existence of problems does not absolve responsibility for them – financial advisers (as do lawyers) have to act in the best interests of their client – for example – a client asks me to provide advice in circumstances where I have a potential conflict of interest – I have to personally decide if it is appropriate for me to act – it is either proper for me to act or it is not – that is a judgment that I have to make (in circumstances where I would also have to tell the client about the potential conflict of interest if I decide to act) – what I can’t do is have a potential conflict of interest but not make a decision about whether I should act or not – provide advice and then at the end of the advice – provide lengthy and convoluted disclaimers about my conflicts of interest and invite the client to form their own view about whether my advice has been influenced (that is, tainted) by that conflict of interest.
Gday David, the “opportunistic lawyers” comment was not directed at you specifically so I am sorry if you felt it was personal abuse, that was not my intention.
I agree that disclosing conflicts of interest does not absolve responsibility, but surely abolishing the means of disclosure is a step backwards?
surely being opportunistic is part of a lawyers job description. Why so sensitive? I thought it was a badge of honour.
ANZ sold off their advice business, to another product manufacturer, IOOF?? Not sure there’s much industry upside in that transaction.
Nick, I agree with you on several of your points but you failed to adequately disclose your conflicts, a paraplanning business!
I did try but it didn’t make it through sub-editing!!
If the FP is qualified, a professional with experience(not just degree and diploma ticked), has morals and a great track record then there is no need for an SOA. End of story.
What would an adviser do until they had sufficient experience, track record and morals? Who would be the arbiter of these characteristics?
they need to learn under the tutelage of an existing adviser. it should take about 7 years to qualify as an adviser, including a post graduate degree, FASEA exam and mentoring period. like most lawyers, accountants, doctors, engineers, actuaries have to do.
we need to increase the barrier to entry into the profession.
minimum post graduate (AQF Level 9 or higher) qualification in financial planning, at least 3 years mentored experience under a licensed adviser and a [b]BRUTAL[/b] FASEA exam modeled on the 3 levels of the CFA @ 6 hours per each level multi choice and short answer and essay questions.
finished. end of story. that would leave about 3,500 – 5,000 advisers, that many remain in the UK
we need to hit the refresh button on this industry.
In my humble opinion the SOA should be a standard industry template in table format of three columns:
recommendation, reasons, product (if applicable). Attach any projections/calculators if deemed relevant to the advice including fees. (Remove all those pleasantries :”Dear John, it was so nice to meet you blah blah) Everything else goes into a client friendly memorandum which may be updated from time to time. Probably wasting my time writing this….
I agree with your view that David Huggins is wrong in calling for the abolition of SoAs Nick. However I think you have made a similar mistake to David, in ignoring the most obvious solution to the majority of financial planning’s problems…. [i]product companies should not be allowed to own or control advice channels[/i][b][/b]!
Once we make that change it removes the underlying source of conflict and friction that feeds so many other problems, and leads to crappy workarounds like unwieldy SoAs and inappropriate APLs. Yes, there will be resistance from some product companies in letting go of advice channels, but it is a fight worth having. And it might actually be simpler than you think. ANZ has already given up and sold off, and CBA is now doing all sorts of backtracking and unbundling in areas that have generated bad PR for them. The big players may need less arm twisting to get out of financial advice than you anticipate.
I have to agree wholeheartedly, make the separation between product and advice and it gets rid of the conflict of interest entirely. Well said.
ANZ sold its advice channels to another product provider so don’t see how the water is any clearer.
It sends a signal to regulators and the market that big banks don’t need to be involved in advice. IOOF has far less clout than the big banks to resist a move to decouple product from advice.
thats one solution, or product producers can only sell their own product directly. How can you stop a manufacturing selling its own product im wondering. The ANZ IOOF thing wont clear things up. They will have an agreement to product push. The product producers have to do something to push and promote their products. What do you think that will be? might be back to old days of overseas trips etc. I dont know.
IOOF may not have the brand visibility of the banks but off the back of the ANZ deal, IOOF will now have the 2nd largest number of affiliated (ie employed or licensed) planners in the country – that is some reach.
That being said, they do also seem to have a strategy of offering a quite a diverse APL, preferring to clip tickets across a range of platforms, rather push a narrow self-branded product barrow.