As part of the government’s response to the Quality of Advice Review (QAR), Financial Services Minister Stephen Jones announced that “the lengthy and legalistic” statements of advice (SOAs) will be replaced with a financial advice record for consumers that is more fit‑for‑purpose.
And while this news has been mostly welcomed, the government has only accepted reviewer Michelle Levy’s recommendation for the removal of SOAs in principle, meaning further consultation will be undertaken by Treasury to determine the final design of the replacement.
Commenting on the announcement on Wednesday, Stacey Cowan, head of advice sales at Midwinter, Bravura Solutions, said an artefact will still be required by customers and urged the government to provide flexibility in the format of this artefact.
“Bravura previously welcomed the proposal to remove the requirement to provide statements of advice and allow advice providers to issue advice in the way that best suits their customers,” said Ms Cowan.
“We agree that the maintenance of an advice record will be important to ensuring the integrity of the advice. Leading financial advice technology already offer simple and secure ways to generate file notes for customers and could be a good option for maintaining an advice record.”
Similarly, SMSF Association chief executive officer Peter Burgess said that replacing SOAs with a record of advice that is more “fit-for-purpose” will help to ensure consumers are presented with clear and concise information without unnecessary complexity.
“As we said in our submission to the review, SOAs have become grossly distorted and are not a consumer-centric document,” Mr Burgess said.
“Their content has extended well beyond the original intent and SOAs have become significantly bloated over time. They have simply become risk mitigation documents that significantly add to the cost of advice.
“Simplifying the record of advice requirements will also result in a significant reduction in the time required to prepare advice, freeing up more time for advisers to provide more relevant advice to more clients.”
Lifespan’s Eugene Serravalle also applauded the move and broadly welcomed the government’s stream one commitments.
“We look forward to hearing about the proposed implementation timeline for these reforms, as well as more detail regarding the consultation process around the design of the replacement for statements of advice,” said Lifespan’s financial planning’s compliance and general manager.
Among the recommendations in the QAR final report, Ms Levy said the removal of SOAs 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.”
However, while the industry mostly agrees current SOAs are too long and legalistic, concerns have surfaced that removing SOAs could leave clients vulnerable to poor advice and unscrupulous advisers.
Speaking at the Stockbrokers Conference in May, Ms Levy suggested advisers may be assigning excessive significance to SOAs.
“People are overstating the value that AFCA and ASIC see in lengthy statements of advice,” Ms Levy said.
“ASIC has been pleading with the industry for a long time to make statements of advice much shorter and clearer. AFCA have told me in consultation that they are suspicious of the accuracy of SOAs.
“So, I’m not convinced either of them want lengthy documents. They just want some accurate evidence of advice and recommendations given, it’s not all the stuff that goes with it. How you record that is something that should be left up to the industry.”
QAR’s success depends on SOAs
BT head of financial literacy and advocacy Bryan Ashenden told ifa earlier that the success of the QAR reforms will ultimately depend on how the removal of the SOA requirement is implemented.
“We need to keep the ‘what’ to a minimum from a legislative perspective — but importantly, get it right and agree in terms of that minimum content the first time we legislate the change, so we don’t have amendment upon amendment upon amendment,” Mr Ashenden said.
“The ‘how’ is also important, and perhaps should be less prescriptive — so whether a written document like today, or a PowerPoint presentation, a video or animated presentation. Let’s try to allow for flexibility and innovation in this regard and something that is fit-for-purpose for the client.”
Aside from the redesign of SOAs, the government’s stream one reforms included a promise to scrap fee disclosure statements, eliminate the safe harbour steps from the best interests duty, consolidate the ongoing fee renewal and consent requirements into a single form, and introduce standardised consumer consent requirements to classify a consumer as a wholesale or sophisticated client.
This might open the door for advisers to use a hybrid tech solution to produce a quick and easy customer record, rather than being bound by ASICs rules of over disclosure, repetition, unnecessary information and mostly, a rigid structure of what must be contained. Having more flexibility for tech providers & licensee to create a document that should be faster to produce, shorter & more concise documents, which are client friendly. You just have to hope AFCA and PI insurers are not the ones dictating what the industry should do.
They are currently dictating what the industry should do. I have yet to hear an argument why this would change from this report.
Back to the good old days of sales agents pretending to provide “advice” to an unsuspecting public.
Bryan Ashenden’s opinion should be taken very seriously. Hopefully, the muppets running ASIC will note this. We are sick of amendments on amendments on amendments.
Customer Advice Record & Replacement Policy Advice Record.
The format that is suitable already exists. Go to any superannuation or insurance advice file circa 1999 – 2000
An elegant format that clients actually read. When I practised (1st years as an adviser) 80% of clients read these in their entirety.
Now; less than 1% of clients read more than 20% of an SoA.
All this disclosure has resulted in the general public being less informed.
Think of it simply using this metaphor. If a man needs to get paint and is told one of ten colours – hell get it 90% right.
If however there’s the entire colour spectrum at Bunnings there’s a 99.9% chance the man gets the wrong colour.
The probability of a document being read are inversely proportional to the page-volume. For the hapless client, some advisers mischievously exploit this supposedly in an attempt to appease the compliance-gods.
If you can get advice for cheaper, Bunnings will beat it by…?
This is what will happen:
1. Properly licensed and experienced financial planners without conflicts of interest will produce an Advice Record, which largely replicates what is currently in an SOA. In most cases the client will only receive an executive summary to sign, which will be more client friendly. Time saving = ZERO. Failure to produce either of these documents will be met harshly by ASIC and the so-called ‘Single Disciplinary Body’ which enforces the FASEA Code
2. Unlicensed call centre jockey’s employed to sell super fund products, paid by taking money out of other people’s super without their knowledge or permission, will not have to produce any document at all. ASIC will deem a recorded telephone call to be sufficient and ‘fit-for-purpose’ for this type of conflicted sales pitch, masquerading as ‘advice’.
The Advice Record could simply and logically be the strategy and product recommendations only. The actual advice and movement of funds. Remainder incorporated by reference. So many parts of the SoA are replicated from previous parts of the Advice process. The present financial position is captured in the fact find, the risk profile captured prior to Advice, and investment and product research completed and saved separately, goals and objectives agreed with an agreed engagement letter prior to commencing work and file noted and financial modelling saved and completed before advice, as a separate attachment. Succinct and relevant with all other captured info incorporated by reference, not replicated unnecessarily. There should be creativity in how it’s presented too, via recorded video or text or other means.
Brace yourselves! new Advice Records for complex advice will still look and feel like an SoA or I hope be what SoAs were intended to be in the first place. The reg guide is pretty straight forward as to the content and is a good guide for what the future will be. It just needs to be less of a document to protect the licensee and one that educates consumers.
It was always called a Customer Advice Record, usually no more than 10 minutes.