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.”