Compliance is widely considered a burden among the advice profession, particularly when it comes to statements of advice (SOA), with the primary concern being that it takes up too much time and over-inflates the advice document.
However, speaking at the FAAA Congress in Brisbane last month, Alexis Compliance and Risk Solutions director Christina Kalantzis said she views it in a different light, arguing that “compliance is not a burden, compliance is protection”.
While SOAs are currently in a period of limbo following an update from Financial Services Minister Stephen Jones last week confirming that advisers will see changes to the advice document with tranche two of the Delivering Better Financial Outcomes (DBFO) reforms, there is still no expected date for advisers to actually see these changes implemented.
As such, the issue of lengthy SOAs will persist for the foreseeable future.
However, while many advisers would love to see SOAs shortened or done away with completely, Kalantzis said she doesn’t agree with the “less is more” philosophy: “What I agree with is this: tailoring and customisation.”
When it comes to creating an SOA, compliance is no doubt top of mind for advisers, though Kalantzis argued that it is easier than it seems to deliver compliant advice.
“So, what does compliant advice look like? Very simple. I’ll give you the answer. Focus on the client. The only thing I’m interested in. You can give me a client file, if we’re just focusing on the client, I don’t have an issue with that,” she said.
“If we have a client focus, and everything we did in terms of the advice is with a client focus, client-centric model, you’ve got compliant advice.”
When it comes to the expectations of the Australian Securities and Investments Commission (ASIC) and the Australian Financial Complaints Authority, she argued that what they want is sound advice, as such, she said advisers just need to make sure they have a “reasonable basis for the advice” and can prove it with clients’ file notes.
Looking from a client and licensee points of view, Kalantzis said that meeting their expectations is also rather simple, though advisers are unnecessarily doubling up on information in the SOA, exacerbating the issue of a bloated advice document.
“Clients want good advice, so do licensees, and they also want to minimise risks. And this is where I think the issues around compliance came around. Overburdening certain things,” she said.
“We would see examples … where there will be five sections where you summarise what the advice is in an SOA, and we can cut that down into one visual.”
“So what we did, we safely removed things. It’s not about us just looking at the SOA that was 93 pages and just going nuts all over it. We looked at what the requirements were, right? Removing repetition is a big one for me,” she added.
Also speaking on the panel, Kinetic Compliance director Nadia Docker explained that there are, of course, key areas that advisers still need to include in their SOAs, while others are somewhat redundant.
“The main thing is covering the best interests, appropriateness and clients’ interests are your big three. And then we know there’s those additional disclosure requirements around product replacement as well,” Docker said.
“And we know that there’s key disclosures and information that ASIC would like to see in your SOAs.”
However, Docker explained that some sections of the SOA, such as the appendices, are, for the most part, skim-read at best. As such, she said that “they don’t need to be in there”.
Despite clear opportunities to reduce the administrative burden of SOAs, it is important to note that many advisers are stuck with lengthy advice documents due to the requirements set out by their licensee.
On the other hand, financial adviser Dr Ben Neilson has argued in the past that advisers can also take the initiative to suggest changes to their licensee, rather than simply accepting the standards as they are.
ASIC regulations for financial advisors
SOA’s are about licensees, AFCA and PI insurance. Advisers have very little say or influence.
Is the SOA for ASIC or the client (it’s a comment).
Full SOA given to the client and powerpoint presentation version can also be presented. This is where we maybe headed.
Isn’t that more work – not less?
Isn’t that funny…” compliance experts say….you can strip away all that…” we have “ALL THAT” extra stuff because of compliance experts! Now they are trying to turn the onerous additions back onto the advisers…no other professions needs so called “compliance” experts, making money off us, telling them how to run their professional practices…how did we become so entrenched with it??
That’s only 1 compliance “experts” opinion. When it comes down to the crunch and the client complains. The full file, SOA, file notes should paint the true picture. I would also like to state that 90% of the picture should be in the SOA.
Sorry IFA, you have made several typos in your opening statement. It should have read “While SOAs are viewed as an onerous obligation by compliance experts, regulators and licensees, advisers have argued that these groups don’t understand what clients actually want in the document…”
It’s galling to read that these stakeholders are suggesting that advisers want SOA’s to be legal documents.
“compliance is not a burden, compliance is protection”.
This is the view that meant we ended up with 100 page SoA’s. The only protection they provide is to the licensee, and the PI insurer. The only thing an SoA needs is to state what the advice is, and why it’s appropriate in relation to the clients reason for seeking advice. The rest is in the file. Even stating fees within the SoA is rather benign if its already covered under a signed service agreement, covered under a letter of engagement etc. The SoA certainly doesn’t need to regurgitate the clients own personal circumstances, or summarise the advice in 3 areas.
What needs to be in an SoA is as much protection as possible against rogue regulators ASIC and AFCA abusing their power to persecute innocent professional advisers.
Client requirements and legal requirements are far outweighed by the need for protection from rogue regulators.
Client is more likely to read 3 pages. Surely, an adviser is smart enough to condense everything into this… if not, take away their license.
Good luck with a 3 page SoA in AFCA.
If you’ve got a way to make an AFCA proof SOA and can do this in 3 pages… Please share it with us. We’d love to see it.
but, isn’t it supposed to be “all about the client”? (it’s about time we stopped having to press our cheeks to the cheeks of AFCA)
Demonstration please.
Clients don’t read 100 page SOAs. Satisfied?
“Surely, an adviser is smart enough to condense everything into this… if not, take away their license.”
I believe ASIC had produced an SOA once for demonstration purposes – and from memory it was longer than 3 pages? Correct me if I am wrong please.
But if the ASIC SOA was longer than 3 pages, are you saying ASIC are not “smart”?
You try bring an adviser and say that. Smacks of ignorance and a lack of experience
Do this to a client and see where your licence goes with ASIC and AFCA with you in their scopes.