12-page SOA still too long: Labor

The corporate regulator’s new 12-page example statement of advice (SOA) has won the backing of the financial planning industry, with compliance experts heralding it a step forward in the battle against unwieldy disclosure requirements for advisers.

Merton Miles, a franchisee at Fiducian Financial Services and 22-year veteran of the industry, said the Australian Securities and Investments Commission (ASIC) document was “good practical stuff well suited for its purpose, keeping in mind it’s for limited advice, not general advice”.

“It directly addresses issues, is easy to follow, it’s in good, plain English, and the set-out is fine. But most importantly, it focuses on the advice that’s been given rather than on the product being sold and compliance issues.”

He said Fiducian already included issues addressed in the model document in its SOAs, which he said currently run no longer than 15-20 pages for limited advice scenarios. But Miles suggested that Fiducian might use ASIC’s model to “refine some of the things we’re already doing and condense that detail”.

ASIC’s 12-page example SOA has also been warmly welcomed by the Financial Planning Association (FPA).

“The example SOA illustrates well how the mandatory requirements for an SOA can be handled in order to provide the level of detail a person would reasonably require to make a decision … and how the statements and information can be presented in a clear, concise, and effective manner,” FPA manger of policy John Anning said.

Anning, however, added that: “The attitude of the legal fraternity will be the real test of the model SOA.”

He also called on ASIC to provide a model that dealt with a more comprehensive financial plan, rather than the simple, isolated scenario provided in the example document.

ASIC’s example SOA deals with advice given by a financial planner to a couple who have just inherited $100,000.

Not so happy with ASIC’s model SOA was the Federal Opposition.

“It’s an improvement, but most consumers won’t read anything longer than a couple of pages,” Labor Senator Nick Sherry told Money Management last week, after ASIC issued the model disclosure document.

“You’ve got to keep it to two to three pages at the most, otherwise you end up with documents of no useful purpose, and they just drive up costs,” Sherry said.

Sherry also criticised ASIC for not conducting “comprehensive consumer readability tests” on the document.

Senator Sherry claimed that clearer disclosure did not adequately address concerns around the commission-based selling of advice.

“Many people don’t understand the impact of a what is a seemingly low commission over time, they may think 1 per cent is less than a $500 flat fee,” he said.

Three out of the 12 pages of ASIC’s model SOA deal with clear disclosure of fees, commissions, and institutional ownership. Upfront commissions and ongoing ‘trail’ commissions paid to the dealership and individual planner, as well as any rebates on upfront commissions, are all clearly stated in real dollar terms.

Sherry said Labor was working on a number of policies that would keep disclosure documents “to a couple of pages”, and increase competition in the choice of fund environment.