In a LinkedIn post this week, Dr Katherine Hunt, researcher, public speaker and former adviser, delved into why Statements of Advice (SOAs) are a “huge logistical bottleneck”.
Noting that even the “omnipotent regulator” knows SOAs are counterproductively long, full of generic information, ugly, disempowering to clients, and costly, Dr Hunt questioned why they continue to be “such a bottleneck”.
“Every other sector has moved on. Evolved. The grunt work of accounting is now mostly done by software that didn’t exist five years ago. Accountants aren’t known for their innovation.
“Yet at [the] university, we are still assessing SOAs by insisting students develop them from MS Word templates,” Dr Hunt explained.
This system, she noted, is not helping advisers evolve “a key compliance tool of the profession”.
According to Dr Hunt, there are two key causes keeping advisers in the SOA stagnation, including that “licensees are run by lawyers who don’t understand financial advice nor the ethical obligations of advisers”, and that universities are keeping SOAs entrenched in their curriculum.
These problems, she opined, will fix themselves when financial advisers are individually licensed and when licensees are service providers who exist to “make life easier”.
Moreover, Dr Hunt noted that universities need to choose to lead with innovation, much like they do in fields such as medicine.
“So, this is the plan, let’s lead as a profession on this, the universities will follow, and then the regulators will follow the universities,” Dr Hunt said.
The Quality of Advice Review (QAR) has suggested the removal of the requirement for SOAs to allow the profession to provide financial advice in a way that suits their customers. Many in the community, however, doubt advisers will move away from documentation entirely.
Exactly / 100% / Spot On
[i]The root cause of nearly all financial advice inefficiencies is regulatory persecution by ASIC and AFCA.
Licensees and their lawyers are not unaware of what good financial advice should be like. But they have to build multiple layers of defence into SoAs, to try and protect against biased bureaucrats for whom biased, vengeful, persecution of all licensed advisers is more important than ensuring consumers get good quality advice.[/i]
ASIC & AFCA need to back the hell down from Adviser killing as their main focus. Clean out both ridiculous regulators that have caused immense hard to Advisers & clients.
good article, logical, happy to support this
But the licensees wouldn’t be full of solicitors if the regulator cut unnecessary tape, clarified requirements so that there is no debate and provided a degree of standardisation. In theory it would also reduce costs without the need for every practice and licensee paying consultants and tech providers to build out their 1000th fact find, SOA, review and service agreement templates.
Most financial advisers will agree that SOA’s, client service agreements, FDS, fact finds, FSGs, etc are way over the top. They often compare having to do these with what a doctor is required to provide.
I agree this needs to change, as it is absurd. Both the adviser and the client are being drowned.
However, the big thing that needs to change for Government to accept this, is the way advisers charge. Most advisers charge a fee for the intial SOA and then an ongoing % based fee to “manage the investments”. Why? Is it really necessary to charge a client with $1m of investments $10k a year to put them into funds that they could get similar (or better) returns just from index funds? Why can’t clients just pay a consultation fee every time they have a decision they need to make?
IMO, until the business model for advice changes, we can’t expect Government will see what we do as anything more than product sales, and as a result tie us in red tape.
well I charge 5-6k on $1m and there are a range of reasons for an ongoing fee – for starters changes to asset allocation to capture income/growth or both, tax planning, de-risking, needs for cash in drawdown phase, review of other aspects of clients situation etc. this is an agreement between client and adviser. if advice is tailored then the service advice model needs to be flexible. please don’t ask the govt any more !!
Your comment is very outdated. The vast majority of financial advisers charge a fixed fee for ongoing advice these days and the average cost is less than half the amount you put forward in your example.
PS. You are perfectly entitled to engage an adviser only when you ‘have a decision to make’. No one is forcing you to pay for ongoing advice. Just like no-one forces you to get routine medical tests from your doctor or have your car serviced at regular intervals. Each to their own.
no it works, I am a holistic adviser who charges a flat $ fee that is renewed each year. clients are happy with it. And I have been around 20 years+
Until Annual Fee Renewal Consent forms (that don’t exist in any nation on earth except Australia) are eliminated, consumers will find it difficult to access advice
The root cause of nearly all financial advice inefficiencies is regulatory persecution by ASIC and AFCA. Licensees and their lawyers are not unaware of what good financial advice should be like. But they have to build multiple layers of defence into SoAs, to try and protect against biased bureaucrats for whom biased, vengeful, persecution of all licensed advisers is more important than ensuring consumers get good quality advice.
It’s not just SOA’s, service agreements, fact finds and engagement documents have all blown out to become incomprehensible diatribes, full of disclaimers, conditions and fine print. But I don’t see the point in blaming the licensee lawyers. They are just trying to protect the licensee from ASIC – and there is the root cause of the problem.
Financial Planning will only become a profession when qualified, experienced, practicing financial planners are overseeing the profession, in the same way every other profession operates. Until then, incompetent bureaucrats will continue to harm consumers by removing access to advice and making it unaffordable for anyone but the rich.
Agree with the Doc. SoAs are non-professional documents. It’s 2023. Let’s act like it.
Lawyers are probably only meeting ASIC legal requirements, but then ASIC doesn’t understand financial advice either.
Unfortunately the FPA has been kow-towing to ASIC for at least the last two and a half decades, so is not providing any leadership at all.
The ship has been sinking for a long time. Review by a lawyer will probably only hasten the process.
Hallelujah !!! I am speechless – finally someone with sense . This is the most truthful non conflicted information I have ever read on here and I suspect it will be shot down in flames – Former head of FPA saw this as well and the inefficiencies with AFSLs and he was quickly silenced. Until we are self licensed in a similar system to what accountants and Lawyers are subject, we will never be true professionals .. If we all have university level degrees we have established a basic level of academic competence – like Lawyers and proper accountants CPAs etc – there is no reason this should not happen — its evolution
you forgot about the watering down on education requirements.
SOA’s are ridiculous.End of story. Takes 2 hours just to check one after paying hundreds of dollars to get someone to produce one. Then no one other then lawyers fighting complaints or ASIC read them anyway. And people scratch their head why advice costs so much.
My most recent SoA for plain vanilla risk advice was 88 pages long. In a word – ridiculous. Much of the content was a duplication and triplication of what was in the PDS. I don’t make the rules, I just follow them.
The first words I normally say to a client when handing the document over is sorry.
Many clients feel you are attempting to hood wink them with such a lengthy document for such simple advice.
I’d suggest your SOA is in breach of the Corps Act – Clear & Concise. You need to consider a new licensee. As a pure risky ours are 20-25pgs & I consider that to be too long & they are never read by clients.