“They’ve received life insurance advice, maybe to churn out of their super fund, which has resulted them losing their default cover; or out of a previously underwritten retail policy suite into an inhouse that has resulted in them being re-underwritten and ending up with an inferior product.”
Mennen attributed part of the issue to an adviser moving AFSL or leaving, creating a break of continuity of advice and a lack of a proper ongoing review of the advice.
“Because we have still have run-off commissions it’s generally the case the retainer is seen as ambulatory, so it’s an ongoing retainer, there’s an ongoing duty to review,” Mennen said.
“When you have an adviser leave or move to a different AFSL, then that obligation to review is compromised. That’s where we see a few problems occurring.”
When it comes to red flags the regulators and lawyers look out for, AFCA advice lead ombudsman Shail Singh reiterated the authority’s preference for consumer-focused documents, but the authority will always review the full SOA.
“I’ve been on the record saying the 100-page SOAs don’t really do much benefit in terms of dispute resolution,” Singh said.
“I think there was a quote in one of the financial publications saying [AFCA doesn’t] like SOAs at all – that’s not true, we just don’t like the current version of them.”
Mennen said it’s a good start when there is at least an SOA to be found. “That might seem facetious, but it’s not,” he said.
“In the CBA Open Advice Review program, there [were] some hundreds of files which could not be located and that included SOAs.”
In terms of the content of an SOA, Mennen said there is room for rationalisation and simplification, but disclosure confirming why the advice is fit for purpose should always be provided.
“As much as a shield for the advisers and licensees as it is to inform the rights of the consumer,” Mennen said.
In terms of specific issues in SOAs that consumer lawyers look out for, it’s where there is a mismatch between the profile of the consumer and the advice strategy put in place.
“We look for poor ‘know your client’ processes, so where there has been a pigeonholing or a boilerplate approach applied to the consumer,” Mennen said.
“We saw this a lot with the banks’ advice models prior to FOFA and the [Hayne] royal commission which has resulted in them divesting in their wealth management arms.”
Mennen added the widespread, simple templates that were used by the banks resulted in significant client losses during tough economic events like the 2008 Global Financial Crisis.
“Let’s remember that’s not until a widespread economic event occurs that we see the result of latent negligence or problems in the advice process,” Mennen said.
“The GFC was the biggest of those in my career. There’s been a significant improvement in advice processes since that time. There have been some significant lessons learned.”
Outside of non-existent SOAs, Mennen said the worst advice documents are the unnecessarily long ones.
“They’re lengthy, convoluted, they’re full of product disclosure documentation which is written in language that a lay consumer can’t understand,” Mennen said.
“A rationalisation of that is important; I support that entirely, but it needs to be done through proper consultation and that’s what the current Labor government is signalling will happen,” he added, referring to the government’s QAR response.
The worst SOAs Singh had seen were when the name of the person on the front cover was incorrect.
“I don’t think that’s ever a good sign,” Singh said. “I remember when I worked in planning in 2008, I was always told make sure you get the name right.”
Otherwise, it’s generally the “cookie cutter” advice documents that will draw the ire of the authority.
“We’ve seen batches of disputes where you see the same SOA for every single client,” Singh said. “It’s hard to understand how that advice is tailored to that particular person.”
When it came to the major pain points advisers have identified to ASIC, senior executive leader for financial advisers Leah Sciacca said the reporting situation regime (otherwise known as breach reporting) and ongoing fee renewals are the two of the biggest.
“[Breach reporting] is a relatively new regime and we’ve certainly heard from industry in terms of the challenges in complying with that regime,” she said.
The finding had been backed up by a report from law firm Gadens and ASIC chair Joe Longo had publicly acknowledged the growing pains that have come with the regime.
Sciacca noted the work ASIC commenced to improve guidance for how licensees should approach breach reporting, which led to the release of RG78 a few months ago.
The first breach reporting review found only 6 per cent of licensees reporting breaches, which was dominated by the larger AFSLs.
“We were clear that it’s an area of focus for us to re-enforce the need to comply with those obligations across different [AFSLs],” Sciacca said at the summit.
“Certainly, licensees that haven’t reported [is] an area we’re focusing on and what we suspect in some cases is a level of underreporting.”
Regarding ongoing fee arrangements, Sciacca said the regulator does not have any modification or exemption powers.
“It’s obviously one that’s been picked up in the Quality of Advice Review and the minister has made some indications about the streamlining of that area,” Sciacca said.