Could DBFO simplify licensee switching?

A licensing head is hopeful that the upcoming legislation will make it easier for financial advisers to switch licensees, as extensive paperwork means they face a heavy burden currently.

Changes to Statements of Advice (SOAs) into a shorter advice record have been a proposal in the upcoming Delivering Better Financial Outcomes (DBFO) legislation which is set to come into force next year.

David Pitt, head of licensing at Akambo Financial Group, explained the current format of SOA puts pressure on an adviser who is looking to change licensees.

Money Management recently spoke with commentators who believe certain licensees are overpromising and underdelivering on the support they provide, prompting some advisers to consider switching AFSLs or going self-licensed.

According to Pitt, the current process of changing licensees as an adviser is particularly onerous and time-consuming.

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“It is very difficult for advisers to change licensees. Advisers are really time-poor in their day-to-day job, so to change licensees is a big task and takes a lot of effort,” he explained.

The transfer period, which typically lasts six to 12 months, requires advisers to reissue an SOA to all ongoing clients, even where there is no tangible change to their portfolio from the new licensee.

“At the moment, one of the biggest burdens for our industry is the SOA and how clunky it is, how much time it takes to produce and how expensive it is. So if you’re changing licensees and you’ve got 100 clients, you have to redo 100 SOAs within the transfer period. There is a mountain of work that comes in legislatively because you’re changing licence, before you go into your normal day-to-day of running a financial planning practice,” Pitt said.

If it costs an adviser $400, as an example, to produce one SOA, he estimated, with a client base of 100 individuals, this could end up costing them $40,000 to move licensees before even factoring in other transfer costs.

“This is one of the fundamental reasons why people don’t change licensees, because they have to go through this burden of paperwork. Some people are reluctant because it is hard or painful to move and the cost as well.”

However, with a shorter and less-burdensome form of SOA expected to come into effect next year, Pitt said this could positively impact the process of switching licensees.

The proposed new document would need to include the subject matter, the advice (such as product recommendations and strategies), the reasons for advice, the cost of the advice to the client and any benefits received by the adviser.

The removal of SOAs had been recommended by Michelle Levy in her final Quality of Advice Review report. Minister for Financial Services, Stephen Jones, previously stated he is hopeful of passing the second tranche of DBFO legislation – which covers the changes to SOAs – by next May, with the first tranche already passed in July 2024.

Pitt said: “Michelle Levy did put a lot of pressure out there about a shorter form version of SOAs. I think if that comes through, that would help and allow a lot more advisers to move [licensees] more easily. But to produce a 30–40 page document currently for a client just to move licensees, and it could be no change to their situation, is an administrative burden.”