Are licensees breaking the law with their SOA requirements?

Speaking with ifa, Katherine Hayes, director and financial adviser at Hayes and Co Insurance Services, explained that while she’s hopeful the Delivering Better Financial Outcomes (DBFO) reforms will remove the burden of statements of advice (SOA), she has concerns about how it will play out in a practical sense.

“Let’s say we get what we want and we no longer need a statement of advice. It doesn’t mean that we won’t need to have the research and the evidence in the background. We’re still going to need that,” Hayes said.

“My concern is that licensees will still want to continue to have something along those lines purely as a compliance record for their own protection, rather than for the benefit of the client, and then we lose the efficiencies that we gained through the reforms.”

She explained that while she doesn’t think this will occur across the board, those that do will likely see many advisers changing licensees, which could lead to additional disruption in the profession.

With SOAs routinely sitting at around 100 to 120 pages, Hayes argued that “licensees are breaking the law with their SOAs”.

Specifically, section 947 of the Corporations Act requires that the information included in an SOA “must be worded and presented in a clear, concise and effective manner”.

“It’s not a wish clause saying, ‘Oh, it’s nice if it’s concise’, but actually the law states the statement of advice needs to be concise. How is a document that’s 130 and 200 pages concise? That’s not concise,” she said.

“I think it’s a problem because if you get these documents that no reasonable person would expect someone to read, you can’t have informed consent, or at least, you can’t demonstrate it through that particular document.”

Hayes added: “The only way to actually have people really read and rely on it, is it has to be concise.”

Presenting at the ifa Adviser Innovation Summit in June, Corey Wastle, chief executive at Verse Wealth, and specialist adviser Nathan Fradley discussed the current state of SOAs and the need to rethink how they are delivered.

Wastle argued that the current SOA is a result of “compliance-led thinking”, making the document unnecessarily onerous for all involved parties.

“We want to shift that, and it’s time to shift that, to client experience-led thinking,” he said.

“So instead of going, ‘How can I make sure I’m doing everything compliantly and then try and get the best experience I can within that framework’, flip it and go to, ‘Let’s give the best client experience we possibly can and how do we make that compliant’.”

Alternative options for SOAs

While many in the profession are hopeful that the DBFO measures will deliver on the promise of removing SOAs, Hayes noted that some form of documentation will still be required.

“I can understand the DBFO getting rid of a document that nobody reads, it makes perfect sense, but it doesn’t abate the need to make sure the client is informed and has all the information they need, but there are so many different ways you can achieve that,” she said.

“I would definitely see more of an opportunity to rely on PowerPoint presentation slides, video SOAs, recorded conversations. It would open up, I would hope, people being able or willing to rely on different forms of communicating with clients, rather than a centralised single document.”

Speaking at the June event, Fradley noted that “the word clear appears 47 times in RG 175, concise 27 times, the word written does not appear once”, noting that the law does not require the SOA to be a physical document, as is currently the common practice.

He added: “In fact, it says, ‘We consider the presentation requirements as important as the content requirements’. The way you deliver your advice so the client understands it, be it what most advisers are doing by getting on whiteboards, spending the time with them, getting to understand them, is as important as what’s in the statement. If your statement happens to be written, so be it.”

Offering an alternative view, Ben Neilson, a financial adviser at Complete Wealth, appearing on an episode of the ifa Show in May, questioned how many advisers had taken the initiative to make changes to SOAs themselves.

He explained that, rather than waiting for licensees or the government to make SOAs less burdensome, advisers should find ways to improve them now and take that solution to their licensees because they may very well say yes.

“Have they asked? Have they got a solution where they say, ‘This is what we’re doing and this is what we want to do, and this is the time metrics on it, and this is why we think it’s safer’?” Neilson said at the time.

“Because every time I’ve done this, on four major licensees so far, every single one of them have said, ‘If you do that, if you replace that template with this template, we would have no problems with that’.

“So, have they asked? And then also, what have they done themselves? It’s very easy for me to say it would never work, my licensee wouldn’t say yes, but have you asked?”