The replacement of Statements of Advice with Client Advice Records is unlikely to result in tangible change to the cost of advice, according to former Financial Planning Association policy manager Ben Marshan.
The much-awaited draft legislation for Tranche 2 of the Delivering Better Financial Outcomes reforms, released late Friday afternoon, included a change to the onerous and time-consuming Statement of Advice, replacing it with the Client Advice Record.
While the sector was expecting a modernised reformation to the SOA, Marshan, now an industry consultant, tells Professional Planner the CAR is “disappointing for us as a profession”.
Difference between SOA and CAR in the current law versus draft bill
Source: Ben Marshan
Marshan takes a self-proclaimed cynical approach and says the timing of the draft legislation is notable with the upcoming election.
He says there were two ways the legislation could have changed the SOA, one being creating a new consumer friendly document which articulated only four things – the scope of the advice, the advice itself, the purpose and the cost – and “build from a minimum viable product”.
Instead, he says Treasury stated an intention to simplify advice documents to be “clear, concise and effective”, but “outside of rejigging the numbering and slightly tidying up the language” not much has changed.
“We were finally hoping to see this long-promised improvements of Statements of Advice, which we’ve all complained about for years, and we got some slight re-numbering,” Marshan says.
In a presentation at the SMSF National Conference last month, Marshan said the Corporations Act prescribed less than what was currently being put in an SOA, but compliance-weary licensees were requiring more information being detailed to mitigate regulatory risk.
In a media statement on Monday afternoon, the Financial Advice Association of Australia said the SOA section of the draft legislation was “disappointing” despite having “high hopes” for the reform. Overall, the association was critical of every part of the bill and said they would not support it without “substantial change”.
“Analysing the requirements for the new ‘Client Advice Record’ or CAR, we haven’t found a material difference between these obligations and those for Statements of Advice, in the legislation,” FAAA chief executive Sarah Abood said.
“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.”
Professional Planner suggested last Friday in an opinion piece while the CAR will allow advisers to “spare clients from the onslaught of paperwork”, it will not then allow those advisers “to begin serving mass market consumers or develop new revenue streams”.
The CAR must cover the advice and its reasons as well as information about remuneration, the adviser and the client’s interests. This is by no means a drastic change as the only obvious important difference appears to be the eradication of the requirement to provide the client with the CAR unless asked for by the client.
The CAR has the additional benefit of licensees and authorised representatives required to keep records on file for compliance reasons but not required to provide these records to the client unless requested.
Marshan describes this difference as a “nice opportunity to take advantage of”.
“Whether or not anyone takes advantage of the opportunity becomes the interesting question,” Marshan says.
“The bits that have to be in the Client Advice Record don’t necessarily have to be provided to the client. What you could provide to the client after every meeting and every time you make a recommendation is a summary document.”
The Quality of Advice Review, the Hayne royal commission recommendation that was the precursor to the government’s DBFO reforms, proposed SOAs be replaced with an advice record given to clients upon request.
But the reform had been a long wait and was not included in the first stream of DBFO legislation which passed in the middle of last year.
A recent panel discussed the benefits of a “summary document” of an SOA as a way of offering a client friendly document in lieu of waiting for regulatory change.
Alexis Compliance and Risk Solutions founding director Christina Kalantzis said a 10-page summary document would be beneficial for both adviser and client as it saves the adviser time, and the client is able to understand the advice clearly.
“We’re actually required to make sure that when we explain what the advice is, that it’s clear and concise and effective, and the way people do that is by doing a summary of the SOA,” Kalantzis said.
Editor’s note: FAAA statement was added after article was published.
I believe , as usual, that this change misses the cause of the time it takes to document advice. It is not the SoA – once everything is in place the SoA can be produced, reviewed and checked within a couple of hours. But this is only after the facts are checked, the safe harbours steps are completed and documented, Best Interest Duties are created and documented, and the strategies created and reviewed, and the alternative strategies are documented and explained why not, and the product comparisons are done. This is what takes the time. That is why I see this change as largely cosmetic and doing nothing to reduce costs and fees (We had a ‘CAR’ in the 90’s!)
After completing the same analysis as Ben Marshan of the current SoA requirements in s947A, s947B and s947D in the Corporations Act and the requirements of the proposed CAR, I am personally of the same view. There is not much to see here in terms of advice production efficiency. Although, I do note that the proposed CAR’s can be issued via audio recordings which may provide a benefit to some industry participants.