Industry insiders have suggested that the Quality of Advice Review’s final report, which proposed a comprehensive roadmap to provide good advice to more consumers, could have a significant impact on the advice community by suggesting the removal of the statement of advice (SOA).
Michelle Levy’s final report suggests that the requirement to provide SOA would be replaced with the requirement for providers of personal advice to retail clients to maintain complete records of the advice provided and to offer written advice on request by the client.
The expected protocol is for clients to be asked whether they would prefer written advice either before or at the time the advice is delivered. Moreover, clients would be required to make a written advice request before the document is issued.
However, industry insiders have suggested that the loss of SOAs could create issues for advisers looking for professional indemnity (PI) insurance.
Specifically, 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.
Peter Johnston, executive director of the Association of Independently Owned Financial Professionals (AIOFP), expressed the view that the proposed reforms from the QAR necessitated a review.
The AIOFP recently supported Minister for Financial Services Stephen Jones’ decision to seek a third-party expert opinion on the QAR final report.
“The AIOFP welcomes a review of the SOA concept and how the PI insurers should approach it,” Mr Johnston said.
“Our industry has been hijacked by the legal fraternity over the past decade where advisers have been spooked into producing enormous SOAs which do not comply with the Corporation Law anyway,” he said.
“SOAs are meant to be client ‘friendly’ and easily understood. Unfortunately, the exact opposite has occurred. ASIC has advised us in the past that SOAs should be no more than five pages with attachments. We agree with them. The cost of advice would dramatically reduce if SOA production complied with the law and common sense prevailed.”
Mr Johnston said the advice community needs ASIC and AFCA to be more interactive with advisers around the content of SOAs.
“This will give great comfort and confidence with their construction,” he said.
“The other critical benefit will be consumers getting a simplified, understandable, and more cost-effective outcome when seeking advice.”
So ASIC have advised that SoAs should be no longer than 5 pages…yet regardless of the details included in SoAs that ASIC have checked, they always manage to find something that should have been included (according to them) that wasn’t. I’ve seen it with 70+ page SoAs. So how was one ever to have everything ASIC required in 5 pages? I think the big disconnect is between the internal factions within ASIC – those who write the rules, those who come up with the example documentation, and especially the Delegates and Analysts who execute the Adviser, with the last faction being the cause of many of the issues the industry and its participants have faced (not to mention the frustration of the clients)
And I have never heard a compliance person say they are happy with any SOA I have ever seen produced, regardless of length or content. Their mindset is to always start by looking for what is wrong with it or missing, or how something could be misconstrued.
So how do other professionals e.g doctors, lawyers, accountants etc, secure PI insurance without providing formal advice documents?????
They dont have to answer to Kangaroo court AFCA.
Or hunted to death by megalomaniac ASIC.
This 100% correct PI should come down because min standard of regulation easing. 100 pg SoA help noone but the compliance economy or failed planners or failed paraplanners turned SoA vetting “experts”
No SOA does not mean no paperwork. It means ASIC won’t mandate what is required.
WRONG!!! In the QAR Report, Levy specifically recommends ASIC mandate recordkeeping requirements to replace SOA’s. You can bet your house ASIC will force us to continue with all of the labour intensive elements involved in creating an SOA.
I would go so far as to say that an advisor that didn’t do some form of advice document (even if the law changes and one isn’t required) would struggle to gain any type of PI cover let alone finding something that is affordable.
Based on?? How do other professionals practice without it (lawyers accountants etc)
So the advice community can and will adapt but the insurance sector can’t? Records are records. Today the SoA provides some proof of the advice, why can’t the file records etc? Another example of change resistance
Having the record on file is different to proving you told the client.
This has been mentioned at length and throughout almost each advisers submission to the QoAR, other professions have less red tape and lower PI costs, the QoAR including elimination of SoAs will REDUCE PI costs. If not, self insure through professional bodies like legal, mortgage broking and accounting professions.
I think that confirms what advisers have been saying for years. SoA is just a legal/compliance document and has very little benefit to client. Single strategy advice could generally be covered by RoA.
Look, even if there is no requirement to produce an SOA/ROA to provide to the client (unless they ask), licensees will produce “something” – it may be more of a 2 page Client Advice Record (CAR) from the ’90’s. It doesn’t matter what it looks like or how long it is, it depends on how AFSLs can adequately defend the quality of their advice before AFCA, ASIC and the courts. This means that all the effort that advisers currently put into research, modelling and file noting of client conversations will still be needed to evidence “good advice” under whatever final form the QOAR reforms take and the best interest duty under the Code (until it reviewed and amended). For all the numbats that think “oh joy, no SOAs”, it’s a false promise coz as much as they hate compliance telling them to so all this stuff (which adds to the cost and time to produce advice), it’s the only thing we’ve got to defend advisers when ASIC or AFCA come knocking. It is for this very reason that Ms Levy’s recommendations will not reduce the cost of qualified advice. What will reduce the cost of advice is opening the doors for Industry Superfunds to employ any unqualified nufty that can advise members on their life savings after a 3 day course. Takes me back to the ’90’s
If super funds can do this for free, without any implications for their salesforce, no obligation to act in a persons besit interest, and without any written consumer protections….. why would I or should I, as a Degree qualified adviser even be bothered following the corps law. Those Super funds will set the standard.
The elephant in the room here is AFCA. Whilst they continue to operate as they do,unfettered, with no legal basis for the decisions they make and no accountability,the removal of a weighty SOA is unlikely. Advisers will not run the risk of being hung out to dry and clearly nor will the insurers
There is no need to worry. SOA’s will remain. The name may change, but that is all. ASIC will force us to do all the same time consuming work required for an SOA when they outline the record-keeping requirements (which is one of Levy’s recommendations). To comply with the FARSEA Code, we will need to provide the advice in writing and get the client to sign it. So what actually changes? NOTHING!! I suspect Levy knows all of this, and she would be secretly laughing at how stupid our lobby groups are for thinking there will be a time/cost saving as a result of her recommendation. The only way to fix this mess, is to remove dealer groups from advice and have a board of experienced, practicing advisers in charge of the Code of Ethics and adviser discipline. I won’t hold my breath.
In New Zealand, such matters as the advers effect on PI premiums (and maybe even unavailability of PI) would be simply dismissed as “unintended consequences”
Accountants and solicitors seem to manage their PI without the need for SoA equivalent documents.
Do Solicitors and Accountants have ASIC?
Has an SoA stopped ASIC action?
And how PI providers to Accountants, Lawyers, Doctors etc. manage this risk in the absence of formal advice documents?????
Are Accountants, Doctors and Lawyers required to answer to ASIC?????
SOA’s aren’t a problem, however SOA’s that are 100+ pages long are! We just need a 10 – 20 page SOA document encompassing the important details. How hard can that be??
It’s easy when you know where the goalposts are…not so easy when the goal posts have been uprooted [b]A[/b]nd [b]S[/b]ailing [b]I[/b]n [b]C[/b]urrents of agressive wind…
It’s not just PI insurers that may be cautious about the lack of a Statement of Advice to document the advice. I have yet to see any reports that show AFCA have been engaged and have agreed with the recommendations in the QAR. If AFCA don’t agree, then heaven help anyone who follows through cause you will be fighting an uphill battle in defending any complaint with AFCA.
Any Adviser with an AFCA complaint is fighting an up hill battle against a Kangaroo Court with zero legal natural justice or precedence used.
SoA doesn’t help at Afca, that’s an absurd stance