Automated SOAs 'dangerous'

Consultant and auditor Frank Smith told ifa a number of law firms are targeting the financial advice sector for litigation revenue - including via TV advertising in Victoria – meaning that getting SOAs right has never been more important.

“The lawyers are saying there is a need for longer SOAs, but there’s not,” said Mr Smith, who also heads the AIOFP’s compliance service and has been an expert witness in a number of legal matters involving advisers.

“In the Corporations Act, it addresses the level of detail that should go into an SOA – and it says the level of detail should be what a reasonable person would require to act on the intelligence.

“So the argument is shorter SOAs, not longer, because long SOAs are a barrister’s dream, a lawyer’s dream – it gives them more to work with.”

The compliance expert also warned against automated and template-based SOAs, which he said are being offered by all of the major financial services software providers.

“These [automated SOAs] are very dangerous,” he said. “The best SOAs are those written by the adviser, because they are the only one that was in the room with the client.

“The length and style of an SOA should be determined by the client and should be peppered with the client’s own turn of phrase to assist recollection.

Mr Smith said a “compliance industry” has emerged alongside growing regulation of the financial services sector, and that many stakeholders, including members of the “legal fraternity”, have a vested interest in “making things more complex so they can come to the rescue”.

In addition, Mr Smith said there are a number of common misconceptions about the purpose and nature of SOAs, as stipulated by relevant regulations.

“According to ASIC, an SOA is not a compliance document, it is not a document to protect you against litigation – although I say if you get it’s clear and concise it can do that – it is not a place to relay all information about the client and, finally, it is not a place for educational material,” he said.