Despite criticism the replacement for Statements of Advice won’t produce a tangible change, there is some industry support that believes it’s a “big step forward”.
The much-anticipated draft legislation for Tranche 2 of the Delivering Better Financial Outcomes was released last Friday and included specific details about how SOAs will be replaced with Client Advice Records.
But this hasn’t received a warm welcome from the profession, with the Financial Advice Association Australia describing the technical details of this section of the bill “disappointing” despite the association having “high hopes” for the reform.
“We were hoping for a much lower level of prescription, and greater recognition of professional judgement, as well as indications as to how the other areas of prescription (notably the impact of ASIC interpretation) would be dealt with,” FAAA chief executive Sarah Abood said in a statement after the release of the draft bill.
IFM Securities principal Lionel Rodrigues believes the new CAR is more client-centric and separates the advice from compliance record keeping.
“The Client Advice Record is about the client. It’s not about compliance, it’s not about ASIC, it’s not about the adviser. This is a big step forward and I think that’s not been appreciated.”
Industry Fund Services, which operates an advice licensee on behalf of many of the industry funds, has organised templates for what a potential advice record could look like.
Industry Fund Services chief commercial and partnerships officer Adrian Gervasoni says they wanted to demonstrate the separation of advice and record keeping through the design of the templates they created, adding it is crucial the two “not be in the same artifact”.
“There’s probably, on balance, too much of a focus on getting it right from a governance perspective, and not thinking enough about the actual service experience for the members that get advice,” Gervasoni says.
Both believe the simplicity of the document containing the advice record, however it is delivered, is an essential element of the CAR.
Rodrigues says the CAR must focus on what the client can understand, how easily they can understand it and how informed they’re going to be which is “a significant departure from the norm”.
Gervasoni says a licensee’s record keeping does not need to be overly complicated and onerous like the SOA which is created for compliance purposes.
“Depending on the type of interaction, what we need to have on file…as a licensee, could be as little as a recording of the meeting, if it’s a really simple interaction.”
Gervasoni says he was “pleased” with the eradication of the SOA and expresses support for passage of the draft bill.
Taking responsibility
The Corporations Act has a relatively small list of what is required to be contained in the SOA, with licensees often taking the blame for requiring more to be included in the document as a means of mitigating compliance risk.
Gervasoni says licensees should be willing to accept having shorter disclosure documents to clients.
“I would rather have the burden or the leadership position as a licensee to be driven by risk and reward and take some ownership to design the advice record that’s fit for purpose, for the advice we provide,” Gervasoni says.
Rodrigues says the CAR consists of short form documents which is supported by other information the adviser keeps on record.
Rodrigues notes for the normal consumer, when something goes wrong a client will usually go straight to the Australian Financial Complaints Authority, but says AFCA will want to see the advice record first.
“[AFCA] want to see that the client has an informed document to make an informed decision. The compliance thing comes secondary,” Rodrigues says.
No longer as ‘prescriptive’
Rodrigues says the CAR legislation provides much more flexibility for advisers than the SOA requirement.
“Embedded in this document [is] this concept of flexibility and professional judgment, whereby it’s been absent before. It’s been prescriptive before,” Rodrigues says.
“The only prescriptive thing we have here in this legislation is the contents and formation of the client advice record. Everything else is pretty much left up to your own judgment as an adviser.”
Another benefit the CAR provides is the option to deliver the advice form through multiple kinds of digital formats.
Gervasoni says he is a fan of delivering advice through a digital form with additional informative videos.
“What we wanted to demonstrate at the moment, when you produce advice in the form of a PDF, you have to kind of guess what literacy level someone’s at,” Gervasoni says.
“In a digital form you could, in theory, deliver a different type of experience to someone with high financial literacy or high attention to detail. That same exact advice presented to someone else could look quite different and all whilst meeting regulatory requirements.”
While Rodrigues admits a technological option such as a video or audio advice record could allow greater business efficiency, his personal preference is a written record.
“The clients advisers generally deal with now, because of the cost of advice and the demographics of our client base, they have people who want stuff in writing,” Rodrigues says.
