Will DBFO actually fix the SOA debacle?

In December 2022, Michelle Levy handed down her Quality of Advice Review (QAR) final report, with 22 recommendations for reforming the financial advice profession, including the removal of the statement of advice (SOA) document.

However, the reality of how this particular recommendation will play has evolved considerably in the years since, solidified by the latest update regarding the Delivering Better Financial Outcomes (DBFO) reforms delivered by outgoing Financial Services Minister Stephen Jones late on Friday.

More specifically, the minister explained that the proposed reforms will “replace the statement of advice with a more fit-for-purpose client advice record”.

While any reduction in the administrative load of financial advisers is often met with support from the profession, speaking on The ifa Show prior to the minister’s update, Lifespan chief executive Eugene Ardino voiced concerns about how effective the proposed changes will actually be.

“I do fear that we’re going to end up with something that’s very similar to what we have,” Ardino said.

SOAs have become a particularly hot topic in the advice profession of late with the growing realisation that many clients don’t actually read the document, meaning the whole process is not only acting as a time suck for advisers but it is also consequently driving up the cost of advice with no real benefit.

“The reality is they’re probably not going to read something unless they really want to read it and that’s the tragedy of statements of advice. They’re no longer a fit-for-purpose disclosure tool for most people,” Ardino said.

“Some people do read it but I would say they’re few and far between and I think that we can do better as a community to make those documents a bit more reader friendly.

“I hope that’s where we go or at least tend towards that way but so far, what’s been proposed at the moment constitutes 75 per cent of what’s in an SOA. So, I don’t know where that’s going to end up but hopefully we move in the right direction.”

Ardino further suggested that regardless of what is eventually changed through reforms, the Australian Securities and Investments Commission (ASIC) has the power to dictate how it will play out in practice.

“It also depends on what ASIC guidance is once the law states what’s got to be in there because they’re the ones that are going to decide in the absence of a complaint whether or not you’ve met the requirement or not. So, everybody basically takes ASIC guidance as law and you should,” he said.

While the profession has at last received the exposure draft of DBFO tranche two, Financial Services Minister Stephen Jones has been highly criticised for the slow rate at which the DBFO reforms have progressed.

However, in an interesting turn of events, Jones announced in January that he will be stepping down from the ministry when the federal election is called, meaning that no matter the outcome, a new minister will be taking over the financial services portfolio.

As such, Ardino said getting these reforms across the line needs to be a top priority for the incoming minister.

“I think they need to give this a priority. I think one of the reasons everything has happened to the snail pace is it just wasn’t prioritised in the way that it should, because the reforms that we put in place are going to take years to actually have an impact if we want to attract more people into the sector, which I think is imperative if they want more Australians to receive advice,” he said.

“And I know that there’s other very important things happening, right? But I think they really need to think ahead. Reforming our industry, making the advice process simpler, making CSLR sustainable and making the advice delivery process simpler.

“They should be the most important parts of their focus, in my opinion, and they really need to give this a priority. And actually, one of the things that Jones probably did reasonably well was to consult with the industry, so they need to continue to do that.”

To hear more from Eugene Ardino, tune in here.