SOAs the ‘most inefficient’ aspect of advisers’ work

Appearing on IMAP’s Independent Thought podcast series, Liberal MP Bert van Manen spoke on the private member’s bill he introduced to Parliament in November aimed at streamlining advice processes and relieving the pressure of overregulation currently inhibiting advisers from providing cost-effective advice.

“The reason for my private member’s bill was as a direct acknowledgement of the fact that I believe there is too much regulation, there’s too much red tape, too much paperwork that is inhibiting the ability of advisers to provide cost-effective advice to their clients,” van Manen said.

“I think the average cost now for a financial plan is $3,500 or more, and we all know that a large number of Australians or more Australians certainly need advice, particularly leading into retirement, but also throughout their life. And they just look at the cost of it and go, ‘Well, I’m not going to bother’.”

One of the key aspects of van Manen’s bill was the proposed introduction of a concise letter of engagement and the replacement of lengthy SOAs with a more accessible record of advice.

Were the bill to be successful, this change would see a considerable administrative burden lifted from advisers while also freeing up time currently lost to tasks that provide little to no real value to clients in order to meet compliance requirements, allowing them to provide much needed financial advice to a greater number of Australians.

Adding to the conversation, Marin Wealth managing director Pedro Marin Ramirez explained that currently, regulations regarding SOAs have led to severely bloated documents that clients simply don’t read due primarily to the length of the document.

“In reality, they just wanted to just understand, how much does it cost? What are my benefits? What are you going to get out of this and what type of products I’m comparing with, and why is it in my best interest?” Ramirez said.

“Generally, these five topics are, we can do it in maybe four pages, five pages. But realistically, we’re trying to cater for probably hundreds of people, and we can only cater for less than 150 each adviser.

“Currently, we still need to do research. We need to compare. Why did you need these products? What product is in your best interest? ... But right now, it takes us at least two to four weeks just to do the SOA without including research.”

To further this point, Ramirez considered how similar regulations might play out if they were to be imposed on doctors.

“If you go to a practice, a GP says, ‘Hey, I know the exact, I know the exact pill you need, but I need to write a book about it, and you need to come in four weeks, even though it might be urgent, but just come in four weeks, because we cannot deal with you right now. We actually have to do this’,” he said.

While there are a number of areas in which advisers are wanting to streamline, Ramirez said that SOAs are the most pressing.

“The SOA is probably the most inefficient part of our work. Yes, there’s a variety of other things, but in priority lists for us practitioners, SOA is probably the main thing,” he said.

To which van Manen added: “The reason the SOA is inefficient is because the regulatory environment is about the product. It’s actually not about the strategic advice.

“And the most important piece of work that you do as a financial adviser is the strategic advice but that’s not recognised in the regulation. The regulation focuses on the product sale, but that’s the end result of the strategic advice that you develop.”

The streamlining of SOAs is also a key element of the second tranche of the Delivering Better Financial Outcomes (DBFO) reforms, however, with a draft yet to be seen and an election fast approaching, there is serious doubt as to the likelihood of it being pushed through in this term of government.