Speaking on a recent episode of the ifa podcast, Lifespan Financial Planning chief executive Eugene Ardino said that following the government’s announcement that SOAs would be replaced by something more fit for purpose, licensees should not stand in the way.
“I think industry, government, and regulatory bodies all agree that SOAs in their current form aren’t fit for purpose as a disclosure document,” Mr Ardino said.
“They act as an OK mechanism for getting the summary of the advice from an auditing point of view. Obviously, they don’t give you the full picture, but as a disclosure document for a consumer to make an informed decision, I don’t think that’d be fit for purpose.
“As to some people’s concern that licensees will enforce having to do it an SOA anyway, that doesn’t make sense to me. I mean ultimately, licensees do run a risk-management type business, but utilising a document that’s no longer needed that we all sort of agree isn’t fit for purposes of disclosure tool. It doesn’t make any sense.”
While Mr Ardino agrees with the removal of SOAs, he questioned what form the replacement record of advice will look like.
“That’s the important part. What will ultimately happen, licensees won’t say to their advisers, ‘You’ve got to keep a record of advice that’s legislated. And on top of that, you’ve got to create a whole new document that you need to give the clients to satisfy our risk management’,” he said.
“I would suggest that unless all licensees did that, and I’d say that that would not happen, those licensees who take that approach are going to struggle to keep their advisers because essentially the market decides what’s reasonable and what’s not.
“What will probably happen in my view is once we know what government and the regulators expect to see in that record of advice, that may become a disclosure tool for circumstances where advice is disclosed.
“Unless it’s a very simple piece of advice, I would expect that most advice will be provided in writing. It may not be provided right at the start, but it will be provided in writing because there’s so many things to consider.”
Mr Ardino added that once the design of the advice records is finalised and understood, it might be able to be moulded into something that can double as a disclosure.
“Because a record of advice has to be given to a client, if they ask for it. So, it needs to be in a format that is usable,” he said.
“We currently use records of advice for advice that doesn’t need an SOA. And licensees and ASIC have come out with guidance as to when you should give it to clients and when you perhaps don’t.
“I expect the framework [to be] very similar to that. The different licensees and different advisers will have different levels of tolerance around what they’re comfortable verbally and what they have in writing.”
Once that is clear, Mr Ardino said, it’s just a question of making those documents as concise and fit for purpose as possible.
“I’ve always maintained that it doesn’t matter what’s in an SOA. It’s not going to protect you if your advice is poor. Nothing will protect you if your advice is poor,” he said.
To hear more from Eugene Ardino, tune in here.
I think the importance of File Notes and emails will become very critical as it is the best way to ascertain informed consent with the client . With regards to SOA documents as it is clients relate very little as it’s become like a novel of 100 pages . Best would be to summarise the advice in maybe a short synopsis SOA and back it up with a good email trail and file notes . May be a referenced document that auditors use in Big 4 Firms can ensure brief SOA but detailed back up notes
The real question is, what alternative will they suggest or be happy with? Licensees will have zero ability to lead on this front.
A disgruntled client will only ever remember what they want to recall ( whether real or not) in order to gain an advantage to prove their case.
Their half smart, smart arsed Lawyer will coerce their client into believing or “ recalling “ all the matters that support their case in order to gain financial advantage for themselves through additional fees ( clear conflict of interest ) and to attack the advice in order to appease their client.
In other words, no matter what advice documents are created, Lawyers will continually be creative in their attack simply to win a case and satisfy a commercial transaction between them & their client.
They have a financial incentive to prove the advice provided was not “ the best “ advice in their clients best interest.
The problem lies in the subjective word “ best “ interest.
It is entirely open to interpretation.
Acting in the clients interest should be sufficient, without the inclusion of the subjectivity of the word “ best “.
Memories are funny things…prior to FSR, there were two “types” of advisers – those operating under Life as agents/brokers and those who held a proper authority. Some were both but this was not the norm. The Customer Advice Record was only used in the life space, proper authority holders generally produced a “financial plan”, the format of which was the basis for what is now the SoA. It was often not dissimilar in length to what the SoA now is with the difference really being the legislated format and increased disclosure requirements. Can thinks be simplified? Absolutely… Back to a CAR? I wouldn’t think so. How did we get here? By not taking any of the opportunities to self regulate back in the 90s…
Mr Ardino, this is not about the quality of advice. This is all about the regulatory burden adding to the costs of producing the advice and making it inefficient, inconvenient and inaccessible, inter alia. Clients may be excused for being oblivious to our issue about differing standards being applied to advisers and super funds. One can hardly blame them when it appears almost everyone else is either oblivious or indifferent to our needs for an even playing field. Nothing more, nothing less.
I’ve been an adviser since 1990 and I’ve seen standards required in SOAs shift from one extreme to the next. The risk is defending a recommendation. I don’t want to risk documenting or recording conversations to as the only means of validating “ informed consent “or the appropriateness of advice.
I would prefer a fit for purpose advice document simply because humans’ retention and recall diminishes and the risk is additional work for advisers and support staff in clarification verses having it set out in written form for the client to refer to.
All will be well until the next ASIC review on advice quality or a complaint has to be defended with only file notes as the line of defence.
History has shown that there is a reversion back to complexity as soon as quality or defence issues arise.
Admire his confidence and I hope he is right. But…Looking at the current law and comparing to what SOAs are being produced, ask how did we end up where we are now? This is no mystery. Concern is real that the same thing happens again.
I get it. You’re trying to sell that you’re ahead of the curve and your licensee will give advisers a much better time. We’re all trying to get to a point where we can pare back the regulatory burden on licensees and advisers and have something like the Client Advice Record (CAR) of the ‘good old days’ that very succinctly explained the advice, the product recommendation and the costs/fees to be paid. The key question is not what licensees will do but what ASIC, AFCA and PI insurers will expect as a minimum so we can adequately defend our advisers. Yes, it is about risk management. It doesn’t matter whether the client receives 2 pages or 20. What matters is that we can evidence advice that is in the best interests of clients and that we as professional advisers have met our statutory and fiduciary obligations when ASIC enforcers, AFCA case managers, PI underwriters and ambulance-chasing lawyers come calling.