Advice practices that have strong record-keeping processes in place will thrive in a post-Statement of Advice environment, with the lengthy advice documents already not the most important piece of evidence in the dispute resolution process.
Quality of Advice Review lead Michelle Levy’s final proposals were released on Wednesday morning which re-affirmed her suggestion to eliminate the current legislative framework around creating SOAs.
Levy suggested replacing the prescriptive best interests and safe harbour steps with a principles-based ‘good advice’ regime, essentially providing the same outcome without the extensive compliance steps required.
However, advisers will still be required to present a written record of the advice given to clients, on demand.
With limited time to digest Levy’s recommendations, the Professional Planner Advice Practitioner Summit hosted a panel discussing the future of best interests duty around two hours after the proposals were made public.
Noting Levy’s recommendation that professionals will still be required to give advisers written documents on request, Centrepoint licensee general manager Allison Dummett said she’d prefer to see these documents reflect client conversations.
“I would like to see documents evolve to the stage where they’re a lot more like the conversations you have with the client,” Dummett said.
“Because I’ve never seen a situation where a phrase missing or present in a document is what a matter hinged on.”
She added that licensees have noticed an improvement of the quality of provided in the time best interests duty and the code of ethics have existed.
From the perspective of the complaints authority, AFCA advice ombudsman Shail Singh said the dispute process will always come down to evidence that proved the adviser gave proper advice that is free of any conflicted interests.
“If something goes wrong how do you demonstrate that you’ve satisfied your professional obligations?” Singh said.
Financial services minister Stephen Jones will consult on all of Levy’s recommendations during the coming months and Professional Planner will host the minister in March during the consultation process in Sydney, Melbourne and Brisbane.
SOAs were never the saviour
Under the current regulatory framework, Singh said following the objectives laid out by the client is important and that long SOAs do not add any assurance on the quality on the advice given.
“Informed consent continues to be a big theme of someone understanding exactly what the advice is. Is there a conflict of interest,” Singh said.
He added files notes and the record of all the client conversations are more valuable.
“I really should be clear on that – the longer [SOAs] often don’t help and sometimes you have to look at the other documentation to understand whether informed consent was given to a particular strategy.”
Dummett added that it’s very much the case that file notes tell the story and not the SOA.
“So much happens outside the SOA,” she said. “File notes are so much more important today than they ever were.”
A long drive down a short road
Reflecting on the history of how the industry has reached this point, Singh said the misconduct over the last decade showed why the current legislative framework was created.
“There was some conduct anyone would look back on today and say ‘hold on what exactly was going on there’,” Singh said.
“You think about various agribusiness type investments, failure to diversify, high gearing. That was the idea behind it. It was an attempt to get rid some of this conduct.”
Evalesco Financial Services director Jeff Thurecht noted best interests duty came in as a response to much of the negative media and public perception that advisers lacked a duty to do so.
“I found that quite offensive, [but] that showed internally within the industry and profession, acceptance we were doing the right thing, but externally there was no proof points or clear evidence,” Thurecht said.
“That’s how we got through working through that process to end up with best interests duty in the current form.”
Dummett added that many of the changes to the advice profession are still in its infancy.
“It was only in 2004 that the requirement to provide an advice document came into play,” Dummett said.
“[Then there was] removal of conflicted remuneration, the introduction of best interest and safe harbour, then further down the track we had the code of ethics.”
Dummett noted that by the time the code was introduced it was largely describing what was already law.
“Where we arrived at is that we can be much more principles-based with the removal of the best interest duty and demonstrate we’ve acted in the clients best interest,” she said.
Thank you Emma Lucas for stating what most of us know about financial planners and their poor documentation, file noting and lack of understanding of business risk. Why is it that the humble file note is a quick, short, last minute addition to a process that demands clarity and detail to protect the fp business and lower compliance risk. We travel Australia looking under the bonnet of good planning practices, owned by smart, caring planners but we have never been overwhelmed by great file note takers. Planners need to be encouraged to build a file note template, have it passed by their Professional Standards people, finish a meeting and by using a free recording app on their smart phone, dictate a detailed note full of client quotes, words and feelings, as prompted by the template, and email it to their Outsourcing Partner to be typed directly into their CRM file note section. So look out, if we don’t keep SOAs it will be left to your file notes to protect these million dollar assets. It should all be inside your Business System.
For years being employed in the world of advice as an advice consultant and compliance manager – I felt unable to comment on these posts for fear it would impact my employment. Having moved to another role now in financial services I feel more comfortable to speak up.
As a paraplanner, then a compliance auditor and advice coach for several years I have seen thousands of client files. Why does nobody seem to talk about the severely lacking state of adviser file notes in this discussion? One of the most common pieces of feedback a compliance auditor gives to an adviser is “your file notes are inadequate”. In all this ‘consultation’ done by Levy I fail to see how much of it can have been done with those people working in financial planning who see hundreds and hundreds of files a year. Advisers have many skills – they are often charismatic, they go above and beyond for their clients, they are engaged and constantly developing professionally… They are NOT good at documentation and drawing a clear line between their thinking and their doing.
The QAR is an absolute farce and in NO WAY benefits advise seekers or super fund members. Back to the days of the Wild West of planning if these clearly agenda-driven and poorly researched recommendations are implemented.
Interpretation at the sticky end where the Licensee may disagree with the file notes, or if it passes that test, though the Regulator has a different interpretation, or the client has an interpretation that differs from everyone else and it all ends up in a hearing, means there is a room full of people who all have their own opinion of what constitutes “Good” advice.
From a Licensee, Advice Practice owner and Adviser perspective, all they want is a simple set of rules that will enable them to look after their clients without the fear of being hauled over the coals and having conflicting opinions as to what they should have, or should not have done.
The Corporations Act alone, is 800,000 words.
Good luck trying to build a brave new world of Advice that opens the flood gates to allow more Australians to attain Advice, where on the one hand, the Banks and Super funds can avoid Regulatory restraint and on the other hand, Advisers are handed a fig leaf with a blindfold that says, “Justice is blind,” then in small print hidden in Legal speak on page??? actually means, UNTIL you cross our opaque line and then we will hit you with a sledgehammer.
What is Good for one person, could be bad for another.
The BAD, is that the risk may not have gone away, though is now hidden behind a poster of happy smiling people who say “All is good in the world,” though do not ask questions, or question the logic until you are forced to appear in front of a Regulator who is about to take your Livie hood away and THEN try and interpret the maze, with your Solicitor and Barrister who by that stage will have run up hundreds of thousands of dollars in legal fees, 2 years of your life gone trying to defend yourself and your Business and personal life in tatters, for what?
The WHAT, is one word. INTERPRETATION.