SOA or not, a financial plan is a must

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.

Padua Solutions co-founder and co-chief executive Matthew Esler said removing lengthy SOA documents does not mean that advisers no longer need to produce a financial plan and regularly review that plan.

“Much of the industry were wrongly suggesting the removal of the SOA or ROA meant you weren’t required to produce the financial plan or review,” Mr Esler said.

“They have now realised that getting rid of an SOA doesn’t mean that you’re getting rid of the financial plan or you’re getting rid of the review. We are moving away from the safe harbour steps but we are still going to have best interest, and we’re now also going to have the good advice requirement.”

Although new documents are expected to be less prescriptive, Mr Esler said advisers should show clients how the technical strategies they suggested are creating value.

“If you look at how much time it takes to produce advice at the moment, I don’t think a lot of that time is going to disappear by getting rid of the SOA document,” he said.

“When a client meets with a financial planner, they are going to expect a financial plan. You are going to need to highlight their existing situation, the benefits of the recommendations, the cost of that advice, and the value your plan will create.

“As fiduciaries, it’s really important to highlight to the client what their existing situation looks like and where they are headed. Then, based on the recommendation, this is how much closer they will be towards achieving those goals.”

Mr Esler said financial advice technology solutions have a key part to play in helping advisers demonstrate that value but added that he is concerned that because of the pressures faced by the shrinking number of financial advisers in Australia, they have not been able to provide the best technical strategies to clients.

“The technical strategies we employed in the early 2000s were far broader than the technical strategies being employed today,” he said.

“That means that advisers are potentially leaving benefits – concessions, rebates, deductions, offsets, and the like – off the table, which means the benefit that’s being afforded to the client has been lowered.”

High-quality technical strategy creates tax and other benefits for clients that are “certain” over and above the uncertain returns through investments, Mr Esler said.

“Being able to show what the maximum quantifiable benefit of each strategy is incredibly powerful, and something that has never existed in the industry, but with advancements in tech, it’s something that is going to exist in the industry in the near future,” he said.