Addressing the recent SMSF Association National Conference 2020 on the Gold Coast, Alexis Risk and Compliance Solutions’ Christina Kalantzis said that with increasing ASIC actions against advisers for best interests duty breaches, the importance of adequately documenting every step taken in the product research and recommendation process had never been more paramount.
“I’ve represented way too many advisers where they forgot to write certain information about the client, but they’ve known the client 15 years and they can name the birthdays of every kid, their address, their interests, what their assets are but they didn’t document it,” Ms Kalantzis said.
“I don’t think they’ve forgotten anything, it just hasn’t been in the records, so you need to start writing things in your records for file notes.”
Ms Kalantzis said there were two areas where ASIC was commonly seeing advisers trip up when it came to adequately complying with best interests.
“Number one is whether you have sufficiently researched and considered the client’s existing financial products. So, when I look at the file I want to see copies of their latest super statement, and if you can get a copy of the PDS of whatever the existing fund was put it in there,” she said.
“Then you need a client table in all your SOAs, which should be an analysis of all the products they were in and the fees, benefits and risks, and the product you recommended.
“The second one is if you have based all judgements on the client’s relevant circumstances. So things like some super funds offer staff discounts on home loans, that could be a major factor for someone to be aware of if they switch. You’ve got to put those kinds of nuances in there.”
Ms Kalantzis said it was important for experienced advisers in particular to document knowledge that may have become assumed after many years of operating in the industry, as had been illustrated in a recent case of ASIC regulatory action she had been involved in.
“This was a real life case where [ASIC] looked at the files of the adviser and said it appeared he had failed to conduct a reasonable investigation into financial products that might achieve [the client’s] objectives and meet his needs, because there’s no record of a product investigation on file,” she said.
“When we say there’s no record of a product investigation on file, this adviser had 40 years experience in the industry, he knew every rating and nuance of every product inside out. But where’s the evidence bit? That’s what they need to see.”
Instead of ASIC releasing vaguely legalese-style and lengthy policies and guidances (which one can assume are either to ensure sufficient grey-area to catch-out advisers when and if they wish with banning orders, OR because ASIC themselves lack the knowledge and practical experience in the areas they regulate) is come out and say “here’s what we need, here’s the SoA template with everything in it and fields to add notes/comments/personalisation as you see fit. Complete this in this format or you’ll cop a banning”. Until then the entire regulatory system is just ridiculous and in no one’s best interest other than the lawyers and regulators. There is a client’s BEST INTERESTS which the majority of Advisers prioritise…and then there are ASIC’s best interests. Perhaps they should actually consult with the public to see what they want, because it’s not 60 page SOAs or garbage disclosures and forms.
What ASIC and we as advisers know too well – is that regardless of what you may do … you will never get rid of the bad element from the industry – A client WILL read a 4 page reccomendation !!! A client WILL NOT read a 30 to 60 page SOA !!!! Its a fact !!
ASIC really need to address all of the conflicting concepts they have infected the advice industry with, ie Corps law says SOA’s need to be clear, concise and readable for the consumer but then with the other hand belt out BID and via FASEA the COE??? How that can all be covered in a document under 12 pages is just impossible…so why oh why aren’t we having THAT addressed by both the associations and govt? for the most part advice is simple so why are we still seeing 60 plus page SOA’s getting dumped on clients when that clearly doesn’t meet the requirements of the law? Move on people because I can tell you that its very hard to unscramble an egg and both ASIC and govt have right royaly screwed the Planning industry, the standard and level of compliance has now made this simply uncommercial to do and given the risk…my god it’s just bleedin scary giving advice isn’t it? If you don’t feel this way then I’d venture you’re not actually in line with current approaches to compliance and documentation nor been audited properly….
We now need to split client meetings into two segments. Segment one where the adviser discusses strategy and markets and engages with the client to maintain the relationship. Segment two where the compliance person enters and doctors up all the paperwork ASIC requires and gets the client to sign next to the sign here stickers. Rather than employing financial planning graduates advice practises need to employ law graduates with their specific role being to meet the requirements of ASIC.
Agree – what is disappointing is that we are so poorly defended by our own associations and dealer groups. ASIC is having fun, the AFA, FPA and large dealer groups are cowering and we advisers are getting….(you name it)
I bet ASIC could still hang you out to dry despite all the documentation in the world.
I disagree, the majority of advisers they ban don’t even write file notes, churn with no basis for advice, steal clients money and divert funds towards their own interests. If you write long file notes and still fail your compliance obligations, then the problem is with your advice….
Clearly you’re basing this on your own personal beliefs and from what you’ve read in the media rather than what’s actually been happening in reality. Yes, some rogue advisers who should have been banned or even jailed have been caught and exited from the industry. But a lot who’ve had their clients’ best interests at the forefront of everything they do have been exited also due to the difference between best interests and ASIC’s version of it.
Agree with all the above. We see the same default super insurance products over and over again, yet every single time have to ‘research’ the product, compare it like for like, to what gain. Regardless whether we would recommend replacement a thousand times over because it is a rubbish cover – just to cover a backside somewhere. We pay in time and every client pays for that time eventually.
What you’re not taking into consideration here, are two things.
1. Each SoA/advice needs to stand on its own merit. That’s why it is a profession, it needs to be justifiable, tailored, etc. The client (and the regulator) does not care if your 20 years of experience yields the same research. Fact is, [u][/u][u][/u]that one piece of advice[u][/u][u][/u] needs to make it very clear why product A was recommended over product B. May be time consuming, but that’s the nature of the industry.
2. To shoot down your argument, if it’s always coming down to the same outcome/product, then why have you not created template text in appropriate places? It is perfectly acceptable to do so for relevant areas. Not template research, template TEXT.
ASIC don’t accept this at all – they claim it’s “cookie cutter”
Not if it’s objectively researched and in the client’s best interest they don’t.
“Compliance Professional” is an oxymoron. Either you are a professional, or you are a compliance bureaucrat.
Professionals like doctors don’t need to write extensive SoAs or re-research established treatment options for every single patient they see. That is just mindless bureaucracy. It would add to the patient’s cost and reduce their access to treatment. The sooner financial advice eradicates excessive compliance bureaucracy and goes down the path of true professions like medicine, the better off consumers will be.
And as soon financial planners, as a group, exhibit the same level of professionalism as doctors, then it might be possible for the excessive compliance bureaucracy to be removed.
This is a deliberate and structured cleansing program….nothing more, nothing less.
This has been in train for the last decade and is now reaching the killing season.
It is targeted, it is ruthless and it is unrelenting.
The essence of trust and relationships between advisers and clients is now held entirely within a paper or electronic file.
What you know about a client, how they think, what their approach to certain issues are etc are now meaningless unless every piece of information is documented.
If it is not in the file, it doesn’t exist and yet so many experienced advisers have a wonderful level of trust and knowledge of their clients on so many levels over so many years.
It is a disgrace as to how this industry has been treated and de-constructed and destroyed.
ASIC doesnt care about feelings and peace of mind. The only quantifiable value they put on advice is how it benefit the client and place client in a better position and document that on paper. Flufy stuff cant be quantified.
The problem dear Brutus is not with ASIC but with AFA FPA etc..
Yes consumer outcomes are very important but only a minority of advisers bother to ask their clients for feedback – why is that?
What are you talking about ??
Too busy with compliance and preparing the legal defense for when Asic come calling…
So when will my GP start having to document and disclose why he hasn’t recommended other types of medication that may have helped me and provide me with a table comparing each of their pro’s and con’s and then disclosing what he receives in benefits from the pharmaceutical company he’s recommended etc etc, or is finance more important than health?
I’d be cautious – doctors already are in that situation. When they go before the medical tribunal they are looking at a 98% conviction rate and ‘inadequate record keeping’ is one more item they throw in to make themselves feel better. We are not the only ones.
This ^
time for tick and flick advice client picked the features
We have reached the ridiculous point where quality of advice is not important, adviser professionalism is not important, consumer outcomes are not important. The only thing that matters is having a documented legal defence on every file for ASIC’s “guilty until proven innocent” persecution regime.
It’s like a cross between Catch 22 and the KGB.
And that’s the ball game – as everyone exits the building how does that resolve best interest – is the risk to continue providing advice just now too prohibitive with MLC turning off fees and commissions, refund of fees without a full advice document on file and the need to study to prove you are ethical?
As an adviser, I would not recommend a new entrant to enter this industry. It would be negligent advice. The risk/reward trade off would suggest a very bad outcome. In time, say 5 to 10 years, the powers that be and the public at large will see that the outcomes are very bad indeed.
ll ASIC are interested in doing is racking up numbers for their KPI’s. Sad really……
Hahaha Greg, your too funny and unfortunately the reality.