SOAs and CARs: Avoiding the ‘yellow Volvo’ approach to compliance

While compliance is a key component of financial advice, Caboodle Financial Services financial adviser and coach Peita Diamantidis says the advice profession has gotten stuck with its “compliance glasses” on, letting fear of legal repercussions draw focus away from what clients want and need.

“What we’ve done is kept our compliance glasses on, effectively, reading glasses, gotten in the car and started to drive, and we’re like, we can’t hardly see anything because we’ve got our reading glasses on. So, we’re going slow and everybody’s flying past us,” Diamantidis said on a DASH webinar last week.

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“That’s what’s happened to the industry, where we’re curtailed, we’re held back by our focus on compliance, which, actually, unfortunately, is about us.

“Compliance is about what we do. It’s not about the client, when really I think we need to shift to, how can we better engage? How can we better transform? How can we better deliver, and then, of course, make sure that’s compliant?”

Looking from an alternative perspective, Diamantidis suggested that if the same mindset were applied to the car industry, the ramifications of acting as such become much clearer.

“If we all ran the car industry, everybody would have a yellow Volvo, right? You can’t drive anything else because we’ve got to be compliant, and that’s the starting point. After that, maybe you can have a sticker and show a bit of personality,” she said.

“The truth is, we can all drive on the road. I own a Mustang, right? I can drive next to somebody in their Camry, next to somebody else in their Volvo, and we can all be compliant. We can all follow the road rules and still bring energy and outcome and experience. So, we’ve just got to shift that as the starting point.”

Statements of advice (SOAs) in particular are often regarded as one of the most significantly burdened aspects of the advice process by over-compliance, though the blame for this is often placed at the feet of legislation and overzealous regulators and licensees.

However, DASH head of adviser solutions Terri Ho said advisers were “almost the victim of our own making”, often taking into account what is legally required and then adding more on top just in case.

“The more we are fearful, the worse it is for the customer, because we talk in jargon without really realising it and we take away the value of what we can bring to a client, because they simply don’t understand what we’re trying to do for them,” Ho said.

With the government’s latest update on tranche two of the Delivering Better Financial Outcomes (DBFO) reform introducing the client advice record (CAR) to replace the SOA, Ho said she would “hate to see us make the same mistakes” with the CAR by overburdening it with unnecessary extras.

“Although the client advised record, what’s required in there has been stripped back a little bit, there is always room for a compliance person, a legal person, someone from the licensee to interpret that to mean, ‘OK, well, it doesn’t hurt if I also throw in that’,” she said.

Expanding on this, DASH product manager, digital advice Melissa Gill said the industry needs to “reframe” what the value is to clients, because a 100-page SOA “detailing all the disclosures and those key pieces of conflict, isn’t it”.

“The client wants to come to their adviser to have their goals discussed, advice that addresses those goals, but in a manner that makes sense to the clients,” Gill said.

“I think we’ve become quite lax in the way in which we are demonstrating the value of the advice that we are providing to the client and that focus needs to be shifted from that compliance lens to that client-centric approach and that’s what we shouldn’t be waiting for and we shouldn’t need legislation to shift that.”

Although it would be simple for advisers to sit around waiting for reforms to make their lives easier, Diamantidis suggested that the overhandling of the profession by politicians is unlikely to stop any time soon, so advisers would need to find a way to resolve challenges on their own.

“I hate to break it to everybody, but this will never stop. Legislation change will never stop because we are a convenient political football, and it’s too easy at every government change, or in the next election, it’s just going to keep on happening, and it’s about important stuff so it’s fair enough that governments focus on this,” she said.

“So, if that’s the case, if it’s always going to be there, it’s always going to be changing, to me, I think we need to stop waiting. I feel like there is this sort of pause for the industry. We just wait until they fix that thing. It’s gotta stop. We’ve gotta just go, ‘Right, we are actually the masters of our own universe’ and power forward.”