Licensees don’t expect the replacement of Statements of Advice with Client Advice Records will make a material difference and are split on whether the draft legislation is a positive step forward.
The highly-anticipated draft legislation for Tranche 2 of the Delivering Better Financial Outcomes reforms included a change to the laborious and time-consuming SOA with a client-centric replacement document officially called CAR.
Entireti chief executive Neil Younger considers the CAR a progressive step and “worth supporting”.
“Our preference is for concise client communication, not long-form SOAs, so Entireti is very supportive,” Younger tells Professional Planner.
Rhombus Advisory practice management director Peter Ornsby agrees with Younger in the sense that the CAR is a step in the right direction but concedes some members of the profession may be “underwhelmed” with the result.
Ornsby says the advice community needs to be on the same page and therefore “there’s still a long way to go”.
“If we get the right outcome, both the licensee and its stakeholders are catered for and the client is getting a more succinct advice.”
Others have supported the CAR, reasoning the new advice document is more client-centric and less onerous as it separates the advice from compliance record keeping.
However, WT Financial Group managing director Keith Cullen says the draft legislation was “disappointing”.
“People were expecting to be given a little more credit to their professional judgment in how to present things and it really did, to a large extent, seem just like a name change.”
Cullen’s sentiment echoes the Financial Advice Association Australia, who also said the SOA replacement was “disappointing” and the requirements for the CAR were not very different to those of the SOA.
Fitzpatricks Advice Partners head of licensee services Lyn Dixon agrees the CAR requirements are “not dissimilar” to the SOA requirements.
“Advisers will still need to retain records of how they arrived at and presented advice,” she says.
“It’s likely that advisers will need a more structured advice construction process/file note/checklist…to support any CAR delivered.”
The topic – and the implication the changes will have for advice businesses – will be up for debate at the Professional Planner Licensee Summit on 23-24 June in the NSW Blue Mountains.
Compliance consultant and Assured Support managing director Sean Graham also says the SOA requirements are largely duplicated in the CAR and says those who think this is a notable step forward have not read all the details yet.
Graham is critical of the CAR and says it is a reform that will only change the name of the document, rather than making a material change.
“If all we’re doing is changing the name of the document, how is that going to change behaviour? How is that going to change what licensees and advisers do?”
Fear of regulatory penalties
Graham says the draft legislation does not get to the root of the problem plaguing the SOA, which is the fear of regulatory consequences.
“If [Treasury] were legitimately focused on improving the advice experience for consumers and facilitating a more efficient provision of services, they’ve got to look at what impedes people from doing that now.”
The key impediment to a streamlined SOA is fear of regulatory penalties or sanction for advice businesses.
“Advisers are terrified that if they take stuff out of the SOA, ASIC’s going to come and shut them down or they’re going to be banned from the industry,” Graham says.
Cullen says less prescriptive regulatory guidance on what the document looks like is necessary to handle the burden of compliance and will be necessary for the CAR to make a difference to the adviser and licensee.
“You’ve still got to do the work and have a robust file to support the decision that you’ve made, and you’ve got to be able to demonstrate that in case anything ever goes wrong,” he says.
Dixon also suggests removal of the SOAs could result in a greater financial or regulatory impact on advisers should compliance action be taken against an adviser or licensee.
“The SOA in its current form helps support the adviser in demonstrating the client at least had the benefit of the information included,” Dixon says.
“The question is what impact this might have on the cost of insurance for all financial advisers if SOAs are removed.”
The corporate regulator is responsible for investigating adviser misconduct, which leads to a focus by licensees on managing risk and meeting regulatory requirements.
“ASIC continues to actively instigate investigations and any process that degrades an adviser’s ability to quickly respond and refute allegations will increase the cost of cover for everyone over time,” Dixon says.
‘Clients get amnesia’
The draft legislation allows for advisers to use different forms of technology to provide the client with advice, including video and audio, but this will likely need include or be accompanied with a document.
Cullen says the adviser must ensure they are managing risk regardless of what form the advice is provided in as “clients get amnesia very quickly” when situations go wrong.
“Even if you just verbally give it to them in a video presentation, you still need to make sure that it’s a robust file that’s managing risk to the adviser.”
Graham suggests most consumers will want a written record they can come back to instead of an audio presentation.
“As a consumer, would I want the advice that’s committing my life savings to be done via audio? Probably not,” Graham says.
Graham says the CAR sounds very similar to the previous Customer Advice Record and older advisers could be thinking the industry is going back to the “glory days” when creating the advice record was a much simpler task but this is a “false expectation”.
