What the QAR says about SOAs and why they should be scrapped

Included in the report as recommendation nine, the removal of statements of advice (SOAs), is part of a combined focus on winding back paperwork and disclosure requirements, which QAR reviewer Michelle Levy said would increase flexibility and reduce compliance costs.

Under recommendation nine, Ms Levy said: “The requirement to provide a statement of advice (or record of advice) should be replaced with the requirement for providers of personal advice to retail clients to maintain complete records of the advice provided and to provide written advice on request by the client. Clients should be asked whether they would like written advice before or at the time the advice is provided and a request for written advice is required to be made before, or at the time the advice is provided.

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“This requirement will not apply to a person who is currently exempt from the requirement to provide statements of advice (e.g. a person who provides personal advice about general insurance products).

“ASIC should provide guidance on how advice providers may comply with their record-keeping obligations.

“The objective of this recommendation is to allow financial advisers and AFS licensees to have more flexibility to provide advice in a form that best suits their customers and clients and to reduce unnecessary compliance costs.”

In her detailed explanation of this recommendation, Ms Levy said that, in discussions with financial advisers throughout the review, SOAs have been “universally criticised for being too complex and adding significantly to the cost and regulatory burden of providing personal advice”.

It is no better on the consumer side, with the documents roundly considered to be too lengthy and difficult to understand.

“And so, while SOAs are intended to be consumer-focused documents (providing the information the client needs to decide whether to act on the advice) and while the content requirements are intended to be flexible in order to permit providers of advice to tailor the individual SOA to the needs of the client, they are often prepared by financial advisers with an eye on defending a complaint or claim,” Ms Levy added.

“In many cases, consumers do not read or do not carefully read a SOA. Consumers rely on what they are told by their adviser.”

Based on research submitted to the review, Ms Levy said it took on average anywhere between 6.6 hours and 14.6 hours to produce a SOA.

“Many advice providers noted that a simplification of the SOA requirements would result in a significant reduction in the time required to prepare advice, which would in turn they said significantly reduce the cost of providing advice,” she said.

“They also said they would have more time to provide advice to more clients.”

Responding to feedback from the Proposals Paper, Ms Levy said that she does not believe there is merit to retaining the SOA obligation with reduced requirements.

“This is for two reasons: consumers should not be required to accept a document if they do not want it (especially when they have to pay for the preparation of the document); and the content requirements in the current law are not the reason for lengthy SOAs.

“It is possible to prepare a clear and concise SOA under the existing law. Despite this, SOAs are very often unclear and very long. They often include templated text cut and pasted from other documents. In large part this is because advisers and AFS licensees use the SOA to demonstrate that they have complied with their best interests duty and the safe harbour steps.”

As part of the recommendation to remove the requirements for a SOA or ROA, Ms Levy also recommended that the provider of advice maintain a contemporaneous record of that advice and give the client a written record of the advice if the client requests written it.

“This means that providers will need to tell clients they are entitled to a written record of the advice and ask whether they would like written advice before or when they provide that advice,” she said.

“I do not think the way in which they ask needs to be prescribed. I say this in an attempt to avoid repeating the mistakes of the past, which have led to a regulatory framework that is complex and prescriptive, and which contributes to financial advice being expensive and difficult to access.”

Explaining how she foresees the recommendation working in practice, Ms Levy said she hopes it will encourage advisers to “provide advice in the way that suits their customers and clients”.

“Freed of the obligation to provide SOAs and ROAs, stockbrokers may provide simple advice to their clients over the telephone, while banks may be able to provide nudges (recommendations) to their customers via an app,” she said.

“Financial advisers will be able to tailor documents to the complexity and nature of the advice being provided, the client’s financial literacy and other aspects of their circumstances. Regardless of the way the advice is provided, the advice must be good advice and it must be provided efficiently, honestly, and fairly.”

Financial Planning Association of Australia (FPA) chief executive Sarah Abood backed the removal of SOAs, adding that implementing the recommendation would be a “quick win” for the government.

“The FPA has been working with members for many years on improving ways to deliver advice, including innovative and more client-friendly initiatives such as video statements of advice (SOA). We are pleased Ms Levy has come to a similar conclusion about the issues with the current SOA regime,” she said.

“These changes would allow financial planners to speed up the advice process and give consumers more relevant information, also offering the real potential to meaningfully reduce the costs involved in providing advice.”