Advice processes and documentation can be substantially streamlined, tailored and customised to client needs, under existing regulations, and advisers do not have to wait for Canberra to act for them, the FAAA Congress in Brisbane has heard.
A panel session focused on “Reshaping the delivery of advice with the client in mind” heard the end-to-end process of advice can be substantially streamlined with no change to the existing regulatory framework. Much of the complexity of advice – and particularly, the Statement of Advice – has built up over time but is unnecessary.
Alexis Compliance & Risk director Christina Kalantzis and Kinetic compliance director Nadia Docker demonstrated a reduction in size of a real-life SOA from more than 90 pages to just 25 pages.
“The reason that this document was selected was because the client scenario is relatively straightforward, with retirement planning [and] some pretty standard assets,” she said.
“And the goal is really around meeting income requirements in retirement. It was also selected because it was an Xplan template [created] with a standard wizard that we see a lot through auditing. And our starting position with this, in terms of breaking down and using technology but also streamlining your SOA document, is a 93-page document for this type of advice.”
Kalantzis said she did not subscribe to a “less is more” philosophy per se, but rather a “tailoring and customisation” philosophy – only include information that is truly relevant in the SOA. Reducing repetition is also a significant part of reducing the size of the document.
“If we look at all the adviser bannings, if we look at the issues in terms of the SOAs that we reviewed, they’re not tailored and customised,” Kalantzis said.
Behavioural Finance Australia director Simon Russell said it is critical that all interactions with clients are designed to work for them from the get-go.
“Good process can help advisers, but it can also help the clients.” He said behavioural research can help advisers “to look through what clients might be saying, and [to] say what’s really going on in the process behind the scenes”.
“My suggestion is that we probably need to be very careful when we are listening to clients, but yes, we definitely do want to listen to them,” Russell said.
“When they say what they’ve read, maybe they’ve read it, maybe they’ve skimmed it, maybe they haven’t. When they say what they understand, do they really understand what they say they understand, and what they think they’ve said? Or if they haven’t read it, [there’s] a good chance that they don’t, unless it’s been explained to them some other way.”
Tangelo Consulting director Conrad Travers said compliant advice starts with the client fact-find; the fact-find can start before the initial client meeting; and “there’s massive opportunities to improve the fact-finding process”.
Travers said “in the initial engagement process, your marketing materials, your pre-meeting email … absolutely you can use AI for those types of things”. However, some parts of the advice process must remain manual.
“Your meeting confirmation, that’s where process and technology can come in,” Travers said.
“In terms of information gathering, there is no way to avoid the fact that your contact with the client is something you’re going to have to do face-to-face.”
Retrac director Travis Carter demonstrated the use of an AI assistant available to most advisers – Microsoft Copilot – to transform the tailored and customised SOA produced by Docker and Kalantzis into a simple, visually compelling PowerPoint deck to efficiently communicate the salient points of advice to the client.
But even before, that step, Carter demonstrated how to develop an effective and relevant fact-find, run a client meeting, produce a concise meeting recap and create a comprehensive file note from the transcript.
None of the actions or processes demonstrated by Carter, Kalantzis and Docker require any changes to existing regulation to execute – it’s possible for advisers, with the right technology and the right approach, to do it all today. Whether Tranche 2 of the Delivering Better Financial Outcomes reforms pass Parliament is irrelevant to any of the processes demonstrated.
While AI has great potential, Carter urged advisers to really understand what they’re getting into.
“With AI, we’re enabling tools to access our data, and we’ve got to be careful with how that’s used,” he said.
“The most important thing to note is not all of the AI tools out there are appropriate for the financial advice industry, and it’s important to note, too, that whether you like it or not, statistically, 84 per cent of Australian workers are using AI now [and] a massive percentage of those are not commissioned by the organisation.”
Ultimately, the aim of improving processes and documentation is to deliver to a client financial advice that leaves them better off, and that they fully understand. In a worst-case scenario, poor advice leads to financial loss and can lead to a dispute coming before the Australian Financial Complaints Authority (AFCA). At this point, no amount of technology – including AI – can compensate for poor advice.
AFCA lead ombudsman, advice and investments, Shail Singh said the dispute resolution body has not yet seen a case where AI was used in the preparation or presentation of that advice. Singh said AFCA would not necessarily know if it had been used in any case; poor advice is still poor advice irrespective of how it’s prepared, and AI is not a defence for that.
“Ultimately, there’s an AFSL that’s responsible for the conduct,” Singh said.
“Now, in a way, who cares how they get from A to B, provided that all those key things that have been talked about – understanding clients’ objectives, providing them the correct advice, informing them – have been ticked off?
“But I think the word of caution is, yes, there’s so many benefits in AI, and efficiencies, but ultimately there’s a person and there’s an AFSL behind it.”
Singh said advisers should never lose sight of the basics, which is to really focus on the key information provided to the client.
“There is RG175 and if you really look at it, it talks about who’s providing the advice, what’s the AFSL, who’s the authorised representative, providing those sorts of details,” Singh said.
“It talks about conflicted remuneration. Obviously, there’s a separate section about product switching, and that’s because there has been a trend in the past of people being switched into something else which is not any better for them. That’s why it’s there.
“So just keep thinking about what the what the guidelines say. Think about what the client wants. And as I’ve also said before, a long SOA certainly is not always the answer at AFCA.”
Earlier at the FAAA Congress the association’s chief executive Sarah Abood raised the issue of AFCA’s so-called “but for” determinations, where compensation appears to have been awarded to clients who had not lost money, but had simply not made as much money as they might have if the adviser had made a different decision.
“Essentially, what a ‘but for’ test means is ‘but for the failing [of the] adviser, where would the consumer have been invested?’, Singh said.
“It’s not about theoretical losses. It’s not about opportunity costs. It’s about direct loss that arose from the failings of the adviser.
“So that’s what we’re trying to do. If we’re not satisfied, and we don’t know what the person would have been in, we’re not going to award theoretical [compensation]. We’re not going to give them hindsight to 2020; we’re not going to say that’s the best returning fund; therefore, we’re going to put them into that. We encourage submissions. It’s often one of the trickiest parts of what we do, but it’s ultimately been endorsed by the courts.”
It’s all very well to talk about what advisers can do to simplify the advice process, but we’d be doing it already, if it was up to us. Unfortunately, we’re at the behest of our licensees and what we can and can’t do is determined by them.