Changes to SOAs pave the way for competition in low-cost advice, says Abood

The chief executive officer of the Financial Advice Association Australia (FAAA), Sarah Abood, contends that amending statements of advice (SOAs) can alleviate the scarcity of affordable advice left by the banks’ exit from the financial advice space, enabling firms to serve a broader market.

Speaking to ifa, Ms Abood highlighted that the segment of the market seeking simple, low-cost advice is currently underserved.

“No one has effectively been operating in the simple, low-cost end since the banks exited advice, so it’s a segment of the market that is not being serviced at all. This [changes to SOAs alongside other QAR measures] would enable businesses to start serving that segment of the market,” Ms Abood said.

“Whether existing adviser will do that or not is absolutely up to them. There are a whole range of different business models out there, but the point is that it opens up the possibility and it’s a possibility that doesn’t exist right now.”

Last week, in announcing the first tranche of legislation related to the Quality of Advice Review (QAR), the Minister for Financial Services, Stephen Jones, said his red tape reduction agenda will make a “meaningful” difference in freeing advisers from the regulatory purgatory they’ve endured for years.

“The overwhelming majority of this is about financial planners and the people who are individually advised. For their client group, there should be a capacity for them to produce advice more efficiently. If it’s more efficient, then there should be cost savings in that,” the minister said.

“Advisers have been saying for some time now, ‘If you reduce the red tape, we’ll be able to provide more affordable services’. We’re going to reduce the red tape, over to you.”

However, industry consensus suggests that the initial measures fall short in effectively lowering the cost of advice. Specifically, the absence of changes to SOAs, identified as a crucial component by both advisers and associations, represents a significant gap in the initial legislation.

“SOAs would be a game changer in terms of dropping the cost to provide advice,” Ms Abood said.

“The market will respond in different ways. Some of us may well reduce prices, some may not, what reducing the cost to provide advice does though is it opens up the opportunities for firms to come in that maybe aren’t working in this space right now.

“I’ve often said that we don’t have an H&R Block for advice and part of the reason is that it’s so expensive to provide even very basic advice to consumers that that model is just effectively not in existence in advice. But if we lower the cost to provide advice, we open up competition.”

Regarding the absence of SOAs from the first tranche of legislation, Ms Abood said that while she is disappointed, it’s crucial to view this as a “delay and not a no.” She also revealed that confidential discussions about the revamped SOAs are currently underway behind closed doors.

Ms Abood pointed out that the challenge with SOAs lies in their interconnected influence on other facets of advice regulation, including the Code of Ethics and the best interest provisions. However, she assured that her interactions with the minister have revealed a “very genuine” intent to address and resolve this issue.

“These changes will still be made, we just found that we need longer to get these changes right is very much what Treasury is saying. And the intent is that it is better to get it right than put draft legislation forward that’s not going to solve the problem,” Ms Abood said.