ASIC said in a statement that Consultation Paper 284 (CP 284), Example Statement of Advice for life insurance: Update to RG 90, seeks feedback on the new example SOA and related updates to the guidance in Regulatory Guide 90 (RG 90), Example Statement of Advice: Scaled advice for a new client (RG 90).
The review was done as part of the Life Insurance Framework announced last November by Minister for Revenue and Financial Services Kelly O’Dwyer.
ASIC noted that the design of the example SOA was informed by behavioural research into how people find and understand the information in SOAs, and illustrates how an adviser can produce a compliant SOA that is concise, structured in a way that is easy to follow and written in simple, plain English.
The development of the new example SOA follows a number of policy developments in the retail life insurance sector that have highlighted the need for better SOAs, the corporate regulator said.
ASIC also said it was asked by Ms O’Dwyer to consider prominent upfront disclosure of commissions in SOAs, and that CP284 forms part of this review.
ASIC deputy chairman Peter Kell said the SOA should not be designed as a mechanism to protect advisers against liability or as a compliance tool.
“ASIC has consistently emphasised that the purpose of an SOA is to communicate to the client important and relevant information about the advice they receive,” Mr Kell said.
“We welcome feedback that will help advisers achieve this objective.”
The new example SOA will replace the example SOA set out in RG 90. Submissions close on 31 July.
My question for ASIC is how the super contribution of $1,000, to obtain the co-contribution, satisfies the Best Interests Duty when the clients have clearly stated they want any excess funds to be used to pay down the mortgage?
Who can we jam for this clear, willful and deliberate omission. name and shame 101, humiliate & denigrate so the person responsible for this is ripped to shreds and doesn’t have an ounce of dignity left
There is a BIG problem in the industry, ASIC are stuck in the 1990’s with the lawyers, Product manufacturers are headed up by marketing people that are also stuck in the 1990’s insurance companies and the big institutions have come to a realization that there is no money in this, too high risk to offer risk to the people. The big insto’s will just let ASIC and the politicians create a slow death of the industry (they can afford this) and blame ASIC and the politicians for the high premiums, to complicated etc. This will kill of the distribution market (the advisers) let the dust settle and just offer direct via robo advice or over the counter. time frame 10 years.
all valid points. except for the time frame, it wont’ take that long. it is already happening. mass exodus of advisers from 1 Jan 2018. count on that as a fact
My feedback is that as a first attempt it gets 4/10. Can be made simpler and shorter by use of references to the PDS. Can not understand the logic behind placing adviser brokerages on page one before any client recommendations / premiums are disclosed? All for disclosure but commonsense says that brokerages follow recommendations / premiums not the other way around. Including a standard text box that explains in plain English what LIFE / TPD / TRAUMA / IP / BE benefits are and then having the adviser follow that with an explanation of which of those benefits and amounts of insurance are being recommended including the reasons why some may not be needed/recommended for example. Look forward to seeing the next version ASIC.
The guy is 43. His youngest 6. His wife earnings are so low they don’t bother the ATO. Yet ASIC, in their blind ideological obsession about the goodness of ISN super funds and the cheap death/TPD cover, wants to rely on ISN fund death cover to pay the mortgage and fund the home if he dies between 43 & 65. Typically, most ISN default covers rapidly reduce from age 47, down to bugger all at age 60, when his youngest will still be at Uni and supported and his wife unable to get a better paying job because of her age.
Refer Aust Super – at age 43, his one Default unit is worth $68,888, at age 50 $35,800 ( a reduction of 47% since age 43) and at 60 his unit is just $11,000, down 85% since age 43.
And that $440,000 mortgage will not be reducing down fast on that households net income, in the real world, with two teenagers to feed and clothe
And if he realises that he is deficient in death cover at say 50, and his health has changed, NO RETAIL COVER will be available
This guy needs reliable death cover that he controls, not ideological sourced clap trap posing as best interests. And yes, as his needs will adjust down, so he can reduce his retail cover downwards to save premiums.
There are loads of errors in this Document, and the document is too long, does not flow, and most clients will not read past page 5
This sample SOA needs serious work by a RISK-ONLY specialist.
Who the hell are ASICs “stakeholders ” and their “valuable contribution ” ?
I think they have just picked a scenario to illustrate, which isn’t designed to encompass all situations.
The problem that you’ve highlighted about unitised cover would be a perfectly valid reason to recommend a different policy.
And interestingly for those concerned about document length, if you paste the parts of the above comment that are about the unitised v fixed cover advice, it comes out at around half a page in small font. Good advice, explained so that the client can make an informed decision, does take a little room.
we need to find out the people who wrote this crap, and rip them to shreds by publicly humiliating them so they do not have a shred of dignity. that will show them. name and shame 101 this is great fund
I disagree with the comments about the example SOA being too long.
Risk advice is complex, especially when you’re looking at income protection contracts where the definitions vary significantly across different contracts and providers. Increasingly the same can be said for TPD contracts when comparing group super to individual retail.
A lot of the complexity we know, and we’re able to process it very quickly in our own minds, because this is what we spend all day doing. But the reason clients are coming to us for this advice is because they don’t know. So the extent of that advice, and all of the options and considerations we’ve made in preparing our advice, spelt out for the client.
Throw in a comparison between an existing and newly recommended policy, and the additional layer of rules and advice if any of it is in super, and it’s pretty easy to get to 27 pages.
Let’s try and pull the 27 pages back to 3. Page 1. The recommended policy and why. Page 2. Replacement product comparison table (if applicable) Page 3. Summary of cover and premiums and commission payable. Everything else can be documented in a standard file note, or on the fact find. Why are we still putting the fact find in the SOA? Why is the commission emblazoned on the front page? It’s not advice. This example SOA is not an improvement at all. It’s a big step backwards. I find it an insult actually. No recognition by ASIC for the effort the industry is putting in to become more professional. “here’s your LIF, here’s your BID, here’s your degree, and here’s a big shiny new SOA that even spells out your bank account fees, even though the advice is about insurance.
It has been released as a draft for consultation. I agree with you that drawing the commission to the front of the SOA is a bad idea.
So you should write to them and tell them that, and why you think so – all the details about how to do so are in the document.
I think you’ll have a tough time winning an argument however with the regulator about putting information in the file note, which a client doesn’t read, over the Statement of Advice, which is their document to read.
That’s the issue though…people don’t read the SOA. Too long. We all know that. Give the client the PDS/Policy Document, copy of the fact find, and leave the Statement of ADVICE for “ADVICE”. It’s really not solving anything at all. Should just be an industry standard advice document. Cut the Dear Mrs. Jones and other pleasantries. Straight to the facts. Wouldn’t mind knowing how long it took for them to write this SOA. We’re not progressing in the right direction.
TWENTY-SEVEN PAGES!!! Imagine if it included investments and super! This is proof that regulations are out of control and ASIC is failing our clients. Anything more than 5-6 pages will not be read by the vast majority of our clients. We all know SOAs are not written for our clients anyway. We write them to keep ASIC and the auditors happy. To call the document ‘clear and concise’ is an insult to anyone who reads Consultation paper 284. It is time for a complete overhaul. With the new education standards coming through, changes to remuneration and the best interests duty in place, the question needs to be asked – are SOA’s still relevant? Surely we can convey the necessary information to clients in a simple format that our client’s will read
Ben you’re spot on – people will not read, let alone comprehend, anything more that 5-6 pages. And it doesn’t matter what the document is or what its for, the same applies.
basic study of behavioral finance literature will confirm your assertions above to be fact. and supported by lots and lots of research i.e. evidence. furthermore, FOS the undisputed, dispute resolution scheme confirms the same, that the first time a client reads an SOA is when there is a dispute. perhaps there is a better system to deliver info to clients in bite size pieces that is relevant and effective and delivers on our overarching obligation to provide financial services [b]efficiently[/b][i][/i] fairly, honestly
Hence why my SOA presentation appointments generally consist of powerpoint slides for the most part. The long physical (or electronic) SOA only comes out at the end, where a brief outline of where to find what information is discussed and document signed.
ASIC’s idea of an SOA is a joke.
Agree AJ and we do the same for all our advice. Clients get it and very few come back with questions about whats in the SOA
“The investment management fees on your OZ Industry Superannuation Fund will increase by $5 per year (being $1,000 x 0.5% per year for the ‘Balanced’ investment option).
Your joint ABC Bank account will be reduced by $1,000. If you require access to funds, you can access funds from your mortgage offset account.
There are no fees and costs associated with withdrawing $1,000 cash from ABC Bank.”
This is a joke, right?
Actually, they missed a bit. “Making a withdrawal of $1,000 means you will receive less interest on your bank balance of 0.20c per year. ($1,000 x 0.20% p.a. x 10 years = $2)
read the example SoA..56 pages. Sorry but Got to page 10 and fell asleep. things will be looking grim for the worlds rainforest once compliance dept’s get their hands on it with that paper count.
so true, this is a joke
Wow 27 pages for simple insurance advice. And here I was thinking that one of the supposed trade-offs for LIF and reduced earnings was that ASIC would make life easier for advisers and their clients by providing a sample SoA that was simplified. I would have thought sub 10 pages would have been a reasonable place to start. Im now thinking Personal Insurance advice will only be offered to those that can afford to pay my fee which I will charge in full before preparing any advice and with no guarantee that they will actually receive any insurance cover. For everyone else I can only provide General Advice via a robot comparitor and without an SoA and still collect full commissions subject to a clawback over 2 years that will be passed on to them. Have to go now, I have a foyer full of clients wanting to pay my fee for insurance advice.
Feedback – without going into major details – how is a young family mean to read or understand the detail and length of this SOA?
what a great opportunity to circulate this example to all risk advisers so we can contribute some practical feedback
Here is the ASIC link Brian.
http://asic.gov.au/regulatory-resources/find-a-document/consultation-papers/cp-284-example-statement-of-advice-for-life-insurance-update-to-rg-90/