Abandoning SOAs will drive up PI premiums
Statements of Advice (SoAs) represent a necessary documentary defence for financial advisers in addressing current fears around being penalised for minor documentary weaknesses and in dealing with the Australian Financial Complaints Authority (AFCA).
What is more, there are concerns that changes to financial adviser documentary record requirements will serve to drive up the cost of professional indemnity (PI) insurance.
Publicly-listed financial services group, Fiducian has issued this warning in its response to the Quality of Advice Review proposals, at the same time as insisting that the professional standing of financial advisers not be eroded via ‘general’ or ‘intra-fund advice’ and that non-advisers should declare their status and their inability to provide personal advice.
While agreeing that SoAs could be made simpler, Fiducian argued that removal of the documents would negatively impact clients and place advisers at greater risk when disputes arose.
“A suitable framework that assists planners to comply with both advice and documentary requirements will alleviate the current fear of being penalised for minor documentary weaknesses, even if the advice is appropriate,” the submission said,
It said this was resulting in excessive paperwork and forcing advisers to “go through page after page of a SoA to confirm that a client has understood the entire document, which is an unnecessary waste of time at significant cost for both the adviser and client”.
“Should a dispute arise, AFCA should be required to use a common sense and neutral approach to both parties rather than simply serve as a body to compensate the client,” the Fiducian submission said. “Clients should be required to pay their share of AFCA costs in circumstances where their claim is frivolous.”
“In our discussions with insurance brokers, we understand that the excess for a claim is going higher and higher because the insurance industry believes that a claim going to AFCA will, with high certainty, result in them paying compensation.”
“This is inadvertently making professional indemnity insurance meaningless because the adviser is having to pay out almost all claims even if they are frivolous because the excess is between $50,000 to $100,000 and claims are predominantly lower than this amount.”
“As noted earlier, the safe harbour steps are a good guide to ensuring that matters of relevance to clients have been considered before advice is provide in a SoA. If followed and documented, it is reasonable to expect that the advice provided in a SoA should be in the best interest of the client, which therefore implies good advice. Without a proper framework, it cannot be proven that relevant matters were considered in the provision of advice. “
The Fiducian submission said that in the event of a dispute where there is no proper documentary evidence, the adviser will have no defence as to whether the advice is good or correct.
In our view, ‘content’, that has not been documented and understood, cannot be proven. However, ‘conduct’, that the various safe harbour steps have been followed, can be proven for the defence of an adviser.”
To me, the cost of spending hours per file on documentation that may or may not help you if ever a claim arose isn’t the greatest use of $ either
Although SOA’s were originally devised to assist the client by advising and showing what has been advised and why etc etc for their protection it has “Morphed “ more towards a defence paper for the adviser to relate to any supply in defence of what they recommended and what may or may not have been accepted by the client
I believe it needs to stay in a manner that explains in simple terms the advice provided why it was provided and what the client accepted
From an advisers point of security it should be provided to clients to check and confirm that’s what they agreed to as the best options going forward It’s no good giving it to them after the complaint has been lodged
Like shutting the gate after the horse has bolted
And by all means it’s needs to be simple straight forward and to the point. Not 30 plus pages remember the CAR customer advice record ??
So many example SoA and reg guides have been released by ASIC then Afca almost arbitrarily rule on an inconsistent case by case basis which all add layers to licensee’s lengthy templates. Better to remove the mandate and Advice Practices are welcome to still provide documents based on their interpretation as a value proposition.
SOA’s as per ASIC requirements aren’t an issue, it’s just that ASIC and AFCA don’t believe they are suitably thorough in the event of a complaint. Licensees and advisers therefore add 50 pages of useless information to make them better protection should a complaint be made. The same thing will happen post the QAR being implemented, they just won’t be called a Statement of Advice. Nothing will change without a complete overhaul of the system and that won’t happen.
Exactly. Bad regulation is a combination of bad legislation and bad regulators. QAR is an attempt to fix some of the bad legislation. But professional financial advice will never become more affordable and accessible until rogue regulators ASIC and AFCA are overhauled or removed. Too many employees of those organisations misuse their power to persecute licensed advisers, driven by personal bias and misplaced vengeance. The costs to consumers of professional financial advice are inflated due to advisers’ needs to protect themselves from these rogue regulators.
An easy start would be to remove financial advice from AFCA’s jurisdiction altogether. After all, financial advice now has a so called “Single” Disciplinary Body.
Levy correctly explained that every time guidance or changes were announced through reg guides licensees simply kept increasing and adding a bandaid peicemeal approach to defend claims; So SoAs are litigious, often not read or appreciated, expensive and overwhelming, production is delayed capacity impacted and all to finance the compliance/remediation economy. She’s 100% right! PI insurers don’t drop premiums for high file review scores or well written SoAs and Lawyers and Accountants pay lower premiums WITHOUT the SoA impost and arguably higher financial risk than most retail advice. Get rid of SoA mandates and watch a Profession provide creative solutions to financial advice clients in an outcome, not process focused way.
AFCA are an out of control kangaroo court that make up their own rules to ensure any vexatious claim gets paid $$$.
ASIC say they want concise SoAs but everything ASIC do in reality goes against what they say. Like 150 page Reg guides x hundreds of them.
A dreadfully broken system Canberra bureaucrats have created and don’t know how to unscramble.