The AFA's Phil Anderson

The exhortation from ASIC and APRA for trustees to request client SoAs on top of fee consent forms will add cost and complexity to an already overburdened ecosystem, while disparaging comments from the regulators are eroding trust in the advice community according to the acting chief executive of the Association of Financial Advisers, Phil Anderson.

A few hours before July 1 regulation came into effect requiring advisers to start getting clients to sign fee consent forms before advice fees could be taken out of super fund accounts, the regulators advised trustees to go one step further and request to see client SOAs as part of their oversight.

The request raised serious concerns about privacy and disclosure parameters for trustees and advisers.

The manner in which the request was made was also harmful to the advice community, Anderson says.

In particular, Anderson notes the section that says “reliance on attestations by financial advisers… has limitations due to the potential for conflicts of interest, so cannot in all circumstances be relied upon”.

Anderson says the wording “undermines the reputation of the financial advice profession, suggesting trustees shouldn’t trust advisers”.

The letter isn’t a one-off either, he points out. On 10 April, 2019, in the immediate aftermath of the Hayne royal commission, the regulators sent a similar letter to trustees telling them to practice “interrogative” practices to make sure advisers are providing services they were charging for.

In a note published shortly after the 2019 letter, Anderson said the specific warning against advisers was “offensive”.

The fee consent rules have already been put forward as the solution to the problem identified in 2019, he says.

For the regulators to now request another layer of oversight is “overkill”, Anderson believes, and only serves to decrease trust while increasing the cost incursion – something ASIC has said it is trying to alleviate with its consultation into access to affordable advice (CP 322).

“If we had a royal commission and it concluded that we need to do A, B and C, why do the regulators feel we need to do X, Y and Z?” Anderson tells Professional Planner.

Making matters worse, he continues, is the mixed messages coming from APRA.

In early June APRA responded to a question from Senator Slade Brockman (taken on notice) about the practice of trustees requesting copies of SoAs, by saying it “has not been prescriptive” in describing how trustees should ensure fees match services.

Four weeks after that denial, APRA co-signed a letter saying trustees had not met their expectations, and that the failure of trustees to undertake regular reviews of advice SoAs was an  “area of weakness”.

“This new letter just doubles down on a message they’re on the record as denying,” Anderson says. “Which one do we believe? Have they been prescriptive about reviewing SoAs or not?”

Privacy and disclosure

Despite the mixed messaging, offence to advisers and added cost, Anderson says the largest concern is around client privacy and disclosure.

Without prescriptive guidance on exactly what information should be shared, trustees and advisers are effectively guessing what an appropriate level of disclosure is. If complete SoAs are handed over en masse, the privacy issues are compounded by the unfair and unwarranted competitive advantage it could provide funds, Anderson says.

He cites assets and liabilities, contributions standing, retirement plans and investment preferences as just a few data points that funds would greatly benefit from.

“Its not just about the clients’ data, it’s about the clients’ intent and motivations,” he says. “It’s just not right that this information could be in the hands of trustees.”

Relying on advisers to arbitrarily decide on what information to redact is bad practice, he notes, as well as being time consuming and costly. It also introduces undue risk that important private information would leak through.

“Law firms are good at redacting documents – they’re trained for it,” he says. “Advisers are not.”


2 comments on “‘Offensive’ regulators undermining advisers: AFA”
  1. Avatar
    Jeremy Wright

    It appears that clients of Financial Planners, must be incapable of making up their own minds as to what services they require and what they are prepared to pay for, based on the continual compliance and Regulatory complexity that is driving up costs.

    I doubt there has ever been a client who is willing to pay a large amount of fees to cover an Advisers costs to provide documentation that they do not understand, they do not read due to the complexity and only achieves one thing, which is to confuse them, so all they can rely on is to hope the voluminous document may provide some good strategies buried in it somewhere that the Adviser will need to find, as they have zero interest in spending hours trying to disseminate illegible legalize.

    ASIC and Government Ministers have said they are open to simplifying the whole process. It is up to the private sector to provide some guidence on that direction, though it must be done from a client and Adviser perspective which is simplicity, so for the first time in many years, clients will be able to clearly see what the advice is providing, without being buried in Legal jargon.

  2. Avatar

    This response is worthy of an association response to government and regulators continuing to destabilise confidence in advice – post the Royal Commission.
    The greatest challenge we all face is escalating unaffordable simple advice on financial ‘steps.’ Not just wealthy complex investment clients – and at the moment everyone gets bundled into a one size fits all advice process thanks to the corps law and the enforcement agency being ASIC.
    The challenge for many Australians is getting help on how to handle debt reduction, cash flow and insurance needs – which according to research amounts to over 80% of Australian workers. It means looking for direction from their superannuation funds, from advisers and friends – all of which fight against each other thanks to the muffling advisers with paperwork.
    However We are seeing the arrival of new technology plays from firms like Map My Plan which is to be applauded as it fills the gap between low cost direction and detailed advice – and advisers can use the technology as can super funds and members therein. The government and regulator could then relax the overboard moribund rules to match complexity when it’s required. Advisers could handle this paperwork seamlessly as it frees up time to focus on meaningful compliance where it’s relevant.

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