Among the recommendations in the Quality of Advice Review (QAR) final report, QAR reviewer Michelle Levy said the removal of statements of advice (SOAs) would increase flexibility and reduce compliance costs.
Under recommendation nine, Ms Levy said: “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.
“Clients should be asked whether they would like written advice before or at the time the advice is provided and a request for written advice is required to be made before, or at the time the advice is provided.”
However, the industry is divided on the impacts of the removal, while most agree current SOAs are too long and legalistic, concerns have surfaced that removing SOAs could leave clients vulnerable to poor advice and unscrupulous advisers.
Speaking at the Stockbrokers Conference last week, QAR lead Michelle Levy suggested advisers may be assigning excessive significance to the ongoing debate.
“People are overstating the value that AFCA and ASIC see in lengthy statements of advice,” Ms Levy said.
“ASIC has been pleading with the industry for a long time to make statements of advice much shorter and clearer. AFCA have told me in consultation that they are suspicious of the accuracy of SOAs.
“So I’m not convinced either of them want lengthy documents. They just want some accurate evidence of advice and recommendations given, it’s not all the stuff that goes with it. How you record that is something that should be left up to the industry.”
Last month, addressing the Financial Advice Association Australia (FAAA) Roadshow in Sydney, Shail Singh, the newly appointed lead ombudsman for investments and advice at AFCA, said while SOAs are important, overly long documents can reduce clarity.
“If you get a 120-page version of the SOA, it can be very hard to understand what the advice was and certainly to get to the key point of the informed consent by the consumer to understand what is being recommended to them, and the risks involved,” Mr Singh said.
“Records of advice, not records of advice in the legislative sense, but some sort of record of what was stated is important and will continue to be important when we look at the steps.”
He added that all of the other material included in the file beyond the SOA can also be just as important.
“The file notes, we talk about that all the time, all the other records of what happened to get an understanding of [the advice],” Mr Singh said.
“I think it is important that the SOA is done properly, and I think it will be interesting to see if this proposal is put into legislation, how the profession responds to it. But ultimately, if it did go to AFCA, we’re going to have to understand what was said to the consumer, and what they understood of that particular advice.”
Mr Singh had previously stated that “documentation is important”, but any decision was up to the government.
BT head of financial literacy and advocacy Bryan Ashenden told ifa earlier that the success of the QAR reforms will ultimately depend on how the removal of the SOA requirement is implemented.
“We need to keep the ‘what’ to a minimum from a legislative perspective — but importantly, get it right and agree in terms of that minimum content the first time we legislate the change, so we don’t have amendment upon amendment upon amendment,” Mr Ashenden said.
“The ‘how’ is also important, and perhaps should be less prescriptive — so whether a written document like today, or a PowerPoint presentation, a video or animated presentation. Let’s try to allow for flexibility and innovation in this regard and something that is fit for purpose for the client.”
The how to write a SOA guide (RG175) is 122 pages. Get that down to 20 pages and we could write a SOA in 5 pages. What we recommend, why and implications and fees…that’s 5-10 pages there. Don’t need 122 pages to tell me to do that.
So does it feel like AFCA are advocating for the SOA themselves? Why would AFCA have any say regarding the Financial Planning industry. This is why all claims from financial advice should be administered via a separate disciplinary body for financial advice. As a matter of fact, both adviser licensing (self registration/ no need for AFSL) and complaints should be handled by the one industry body, then no one will have to worry about either licensees or AFCA advocating for SOAs.
What written advice and findings and supporting information does my Doctor provide me before treating me?
What written advice and findings and supporting information does my Solicitor provide me when advising me?
What written advice and findings and supporting information does my Accountant provide me before doing my tax?
What written advice and findings and supporting information does my Dentist provide me before treating me?
NONE.
They all just verbally explain things to me, in terms I can understand, what they have observed and what remedial action they think is suitable and what that will cost me and what the pros and cons of said actions are.
Why can’t FP’s do the same?
Those people are considered to be Professionals working in a Profession by Consumers and Governments. Whilst you an Adviser, just work in an Industry and you might behave in a professional manner. Very different things treated differently by Treasury. It’s that lack of being a Profession as to why Advisers got left out of the QAR and not seen as part of the solution but part of the problem.
Other professions (legal, accounting) produce a document, if required, for the benefit and education of the client. SoAs are produced for the benefit of compliance. Clients DO NOT LIKE the current format. A simpler overview would be better and would comply more with the FASEA Standards.
Please get rid of SOA’s no one reads these bloody things!!!
ASIC and AFCA say they don’t want it, but then point out what things are missing. The only way to fix this is to add more information into them.
The first few pages of most SOA’s are stuff that ASIC and the RG says we must include – and ironically don’t include any of the actual advice.
SOAs should be scrapped and replaced with whatever the client wants/needs to understand the advice and recommendations.
Exactly. ASIC and AFCA also say they want more scoped and limited advice, then go looking for things that haven’t been included in the advice.
Levy is incredibly naive about why advisers are so scared of regulators, and why licensees and PI insurers are so conservative. It’s because ASIC and AFCA are driven by bias and prejudice against all advisers. They cannot be trusted to act fairly and professionally, so advisers have to build layers and layers of expensive documentary defences, even if the regulations (and consumers) don’t require it.
ASIC and Levy have never had to write an SOA, knowing that every single sentence can be put under scrutiny by ASIC and AFCA and all those nasty lawyers. ASIC invented the SOA, now its the Advisers fault. Lawyers added layers of complication, but of course, that is the Advisers fault. Levy blames compliance and she blames the advisers. The problem is ASIC. They made the rules, and they rule the industry with a campaign of terror.
SOA’s aren’t going anywhere and Levy knows this. Dealer groups and PI insurers have already said they will be kept, and Levy herself has recommended ASIC produce record keeping guidelines, which will almost certainly require us to continue to do all the time consuming work that goes into an SOA.
Maybe they will become shorter and won’t have to be given to clients in some cases, but for a typical financial planner there will be close to zero benefit from her SOA recommendations.
The whole reason for her recommendation, is to ensure the big super funds and product providers don’t have to do them. That is what this is really all about. Creating an unlevel playing field for her clients, the big instos.
The cowboys/girls left the building a long time ago. Now, we (remaining advisers) have the same percentage of good-apples as other professions and deserve to be treated with some dignity and respect they command. Allow us to do our job for our client without the shackles of bureaucracy dictating the word-length of a SOA.
The mandated SoA should 100% go The subjectivity of what is succinct and what the document should look like is a rabbit hole only lawyers and the compliance economy win from. Not clients or Advisers. Like quality accountants and business advisors who don’t have to provide documentation but choose to, Advice should also leave space for flexibility in learning styles and creativity in delivery. Mandating anything prescriptive has retrospectively been a huge part of the problem and I’d love to see it go, big part of being a real Profession (together with self regulation).
So, if there is no written advice (ie SOA) co-signed by adviser and client, what defence does an adviser have if a consumer goes to Ms Levy one day and says “in hindsight I think I was given bad advice…” ?
She’s 100% correct. The SoA should be removed. ASIC has a RG which is non-compliant by any standard for scaled advice, the comprehensive SoAs for licensees are designed by AFCA findings of failure, so they are both responsible, which indicated remove the requirement. Industry, Professional Bodies, Government, Regulators – they’ve all had a go and made it worse and worse – all disclosure and no actual strategy. Scrap them. Make the minimum standard no document, like ALL OTHER PROFESSIONS, then if the practitioner wants to go above and still offer a document or ask the consumer, great. Brilliant initiative Levy!!