Compliant but complicated: What lies in store for SOAs?
There’s room for improvement with advice documents, advisers say, that could save time and effort while enhancing consumer comprehension.
For the amount of effort that went into the work, there seemed to be little consideration for what the client would take away from the document, many agreed. Per KPMG research, the average time to draft a statement of advice (SOA) was some 10 days, with the median document size at over 70 pages.
According to Association of Financial Advisers (AFA) chief executive Phil Anderson, there was little doubt within the profession that SoAs were too long, were not particularly client-centric, and were heavily influenced by the regulatory regime and the desire to minimise the risk of regulatory exposure.
“There is a lot of room to improve SOAs, however the Quality of Advice Review has entirely changed the debate by asking the question as to whether they should be mandatory at all, unless the client wants an advice document,” he stated.
The review, currently with Minister of Financial Services Stephen Jones, was expected to be released any day now.
While its exact recommendations were not yet known, Michelle Levy previously indicated in the August Proposals Paper that she would recommend the Corporations Act be amended to remove the requirement to provide SOAs. She had added that a written record of advice could be provided on request by the consumer.
After all, simple advice might not require such a lengthy document, Anderson observed.
“The cost is significant, and recent research suggests that there is limited differential between the cost of production for simple and complex advice. We need to be conscious that the cost of producing an SOA, is also related to the process that needs to be followed to get to the point of the production of a document,” he affirmed.
“The process for the production and delivery of financial advice needs to be re-engineered through the eyes of clients, with non-value adding activity eliminated or reduced. There is limited value in the production of a document that many clients do not read.”
Formal research, too, found that somewhere along the way, such advice documents were compliant but had become far too complicated.
“If we look at an SOA document, it's the only level of regulatory protection that we have and also the only by-product of financial advice for the consumer. It seems confusing to me that we've never actually looked at it from what the consumer wants,” elaborated Ben Neilson, founder and director of Neilson & Co Wealth Management in Queensland.
A PhD candidate at the University of Southern Queensland, his research looked into drafting a shorter version of an SOA that complied with the law while being easier to understand and digest by the client.
“For this research, we went through what we have now, which was the licensee or industry standard document, and then went through the regulatory guides, and literally got rid of all the stuff that doesn't need to be there.
“The recommendations went from some 12 pages to two,” he explained, adding the concise document included hyperlinks to Government websites like MoneySmart and the Australian Tax Office to provide additional timely information for clients.
When Nielsen approached over 160 financial planning clients and registered advisers with the concise document, his research recorded higher levels of comprehension, value, and trust compared to the standard industry document.
“All we’re doing is putting together a method by changing the language and the size [of the document] and making smarter people as a response,” he said.
“There will always be a spot for advice documents because we need to prove what we did, but there’s absolutely no research to suggest they need to be 100 pages long!”
The idea was echoed by Patrick Flynn, advice innovator at Simply Kaizen consultancy, who noted the lack of a viable alternative, but did not believe the current standard needed to be overly wordy or time-consuming to meet the mark.
He told Money Management, “Attention span is a limited resource, and if you blow it you’ll have them reading the first few pages of your boring document, skimming the next few, and outright skipping the rest. That’s not in anyone’s interests.
“To combat this, advisers could consider alternative options such as giving a video summary, stressing its importance, giving the document prior to the meeting to allow clients to prepare and modern document design including images and accessible language.”
Embracing technology
At the FPA Congress in Sydney last year, ASIC senior executive leader, Leah Sciacca, had reiterated the Corporations Act 2001 was ‘technology neutral’ and that the corporate regulator encouraged the industry “to explore technology and innovation”, such as video SOAs.
The AFA, too, supported the increased use of technology in financial advice to be more consumer friendly.
“It is important that clients understand their SoA and that they continue to appreciate the importance of it over time.
“Thus, having a way of coming back to it on a regular basis in a straightforward and not overly taxing manner is a really good outcome. Video SoAs offer a number of benefits, that are likely to be attractive to many clients,” Anderson agreed.
There could also be some merit to the use of artificial intelligence (AI) tools in advice without replacing the role of a human adviser as many in the industry seemed to fear, said Practifi chief executive Glenn Elliott.
“Machine-powered automation of financial advice isn’t new, of course. Robo advice already plays a significant role in automating construction and management of portfolios,” he noted. “But it hasn’t replaced the personalised care and emotional guidance that a human financial adviser provides.
“AI can be a tool that advisers use to better serve their clients. advisers and their teams harness the power of AI today — advisers using our platform dictate their meeting notes using voice to text, and use AI-powered growth projections to help plan their business.”
Other tools like Padua Solutions’ robo-advice generation tool for financial advisers, launched in June 2022, were also being used to solve the challenge of cost, time, quality, and client engagement by helping produce simple SOAs and records of advice (ROAs) in minutes. In September, Count Financial became the first licensee in Australia to embrace this technology.
Matthew Esler, Padua co-founder, elaborated: “In any financial plan a client will expect to know the value of advice provided. In its simplest form this is Benefits – Cost = Value.”
He reiterated the often-overlooked importance for an adviser, apart from meeting compliance standards, is to ensure the client could walk away confident in their financial plan.
“At the end of the day, when a retail client engages a financial planner, they are expecting a financial plan.
“At a very basic level, this means explaining their existing position and what that position means for retirement or other objective they are working towards; highlighting what recommendations the financial planner is making; and finally, what benefit or difference those recommendations have made in comparison to their existing state.”
UPDATE: In the recent QOA report released in mid-Feb, Michelle Levy stayed the course to do away with SOA requirements. Instead, she advocated for advisers to “maintain a contemporaneous record” of advice provided and give the client a written record of the advice if requested.
Levy also stopped short of detailing the way in which clients would need to request for a written record or a specific framework for record-keeping by advisers, suggesting the Australian Securities & Investments Commission (ASIC) should provide guidance on this matter.
Read more about it here.
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Rhea Nath
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You’all can talk about whatever length SOA or no SOA as much as you like. But until ASIC and more so AFCA get the same picture it’s just waffle.
Until AFCA accept 2 page SoAs and aren’t bending over backwards to payoff any vexatious client complaint then we remain stuffed to the gills with AFCA induced protection padding.