Whether an SOA will be required to be 100-plus pages, 10 pages or even non-existent, AFCA remains focused on how the advice was given.
Quality of Advice Review lead Michelle Levy recommended scrapping SOAs, but during the Professional Planner QAR Roadshow, Minister for Financial Services Stephen Jones only showed support for shortened versions of the advice document rather than complete obliteration.
AFCA lead ombudsman for advice Shail Singh said SOAs are important, but the 120-page versions can make it hard to understand what the advice was.
“The SOA is important, but the SOA done properly is important,” Singh said at the inaugural roadshow for the Financial Advice Association in Sydney on Monday.
If the QAR proposal is legislated, Singh said it will be “interesting” to see how the profession responds to it.
“If the dispute goes to AFCA, we’re going to have to understand what was said to the consumer and what they understood about that particular advice,” Singh said.
Tangelo Advice Consulting principal consultant Conrad Travers predicted licensees would adapt and lift the supervision and monitoring frameworks in place to make sure the advice being given is clear.
“I would recommend for new clients, even if they don’t ask for it, to give them a simple summary of the advice,” Travers said.
“That could be five pages and make the advice really clear – what are you recommending and what are the next steps to the client. Beneath that, cover off the additional scenarios that you might have considered just in summary format, then the risks and the fees. If you do that, that’s best interest.”
The Minister’s response to the QAR is expected before the Professional Planner Licensee Summit in June, where Singh will again engage licensee heads on similar topics.
Safe Harbour
Jones – with support from the consumer groups – has been open to eliminating safe harbour, with the Minister suggesting it will go.
While Jones was against doing so in the lead up the election, he has since been swayed on the issue, explaining at the QAR Roadshow he took on feedback from the advice profession that the regime wasn’t offering any regulatory protection for advisers.
Travers referred back to ASIC’s Report 515, the 2017 review of how licensees oversaw their advisers which he attributed to as strong evidence why the lawmakers felt more prescriptive oversight was needed.
“Basically, it found they disagreed with three quarters of the advice that was given at the time,” Travers said, summarising the report, adding the review also disagreed with the way advice was audited.
“That was quite a significant finding for those major licensees and that’s the reason why a lot of the perceived over-reach from licensees has come from – things like mandated like-for-like comparisons, mandated use of software, quite rigorous file requirements have come out of that.”
When it comes to how AFCA approached safe harbour, Singh said the authority is bound by what is “fair” in the circumstances as well as having regard to the law, and industry codes and practices.
“If there was a slight breach of one of the safe harbour provisions, but the advice was still good then it wouldn’t be fair to find for the consumer in that circumstance,” Singh said.
“We try to take that approach, where we have to have regard to it, but ultimately the focus is on what’s fair in the circumstances.”
Singh added a technical view of safe harbour doesn’t always lead to a “fair” outcome.
“It’s consistent with what [Financial Services Royal Commissioner Kenneth] Hayne said about the test, ultimately, it’s the important the consumer gets the right advice,” Singh said.
Low figures
Singh said advice complaints were sitting “around 45 a month”, a continuation of the drop the authority has reported in previous years. “That’s not many; that’s 500-600 a year,” Singh said.
He added the issues are what he called “systemic problems” with property in SMSFs continuing to be a major theme.
“Otherwise, other disputes are getting more complex than what they used to be,” Singh said.
“Another theme is risk, when over-insurance/underinsurance is an issue. I won’t overstate it because the numbers are low overall.”
Asked whether he still saw disputes arising over fees for no service, Singh said this was no longer the case as previous claims had “washed through”.
“Where this all came from was people charging fees [and] people not understanding what was going to be given for that fee,” Singh said.
“It’s simple in a way – if I pay you $10,000 a year what do I get for that? Investment management, quarterly reviews, whatever else it is – but just be crystal clear on what that is. I’ve heard the concerns about [Fee Disclosure Statements], about how it’s over done now but it’s worth thinking about why that came all about.”
When it came to how many complaints there have been related to the Code of Ethics, he said “not many is the truth of it”.
“We can raise it as part of a dispute… We haven’t encouraged it at the moment, mainly because of FASEA being disbanded and some of the issues with Standard 3 and 7,” Singh said.
“The credit and services panel will be applying it and considering it, so it will take a lot of prominence. It hasn’t come up a lot at the moment, but I expect we’ll see more of it as time goes on.”
