Cutting back on Compliance

The Financial PlanningAssociation (FPA) has long argued that the greatest barrier to affordable advice is the compliance burden associated with the current disclosure regime.

The FPA sees the issue as one of the most important facing the profession and continues to lobby for change, particularly in the lead-up to the 2007 federal election.

The Financial Services Reform Act (FSR) regime came about in 2002 when the Federal Government introduced comprehensive disclosure requirements for financial planners in the form of a Statement of Advice (SOA).

SOAs have proved expensive to produce because of continuing uncertainty among planners on how the extensive legal requirements will be interpreted due to the uncertainty about what to include in an SOA.

Planners are taking a conservative approach to ensure they comply with the requirements of the Act. This has led to expanding SOAs with resulting costs generally passed on to the client.

The FPA recognises that a lot more can be done to reduce the complexity of an SOA, starting with a one-page key facts summary.

The proposed summary is designed to highlight to the client the five major issues associated with the advice so that the client is very clear about the nature of the advice.

The FPA has introduced its own SOA guide that is utilised by members.

There has been some headway in reducing the regulatory burden on planners.

In its first round of refinements to the FSR, the Government introduced the Record of Advice (ROA).

It went even further in the latest round of refinements this year, introducing the Simpler Regulatory System Bill.

The FPA welcomed the Bill, which proposes to reduce the costs of compliance by exempting the need for an SOA in specific circumstances including where the investment sum is less than the statutory threshold (proposed to be $15,000) and where no remuneration is earned from the advice.

Instead a ROA must be made in its place that still requires documentation of any conflicts of interest, remuneration received and the basis for the advice.

Additionally, the regulations introduced allow for incorporation by reference, which will allow financial planners to incorporate by reference in an SOA material (or documentation) previously advised to a client.

These regulations should also reduce the length of SOAs meaning greater affordability for consumers.

While the changes are a step in the right direction, it is the FPA’s view that more reform is needed, such as:

> the SOA should be user friendly from a client perspective and regulation should balance consumer protection and members’ needs from a business perspective;

> the ROAs should have even greater applicability to reduce costs for planners and clients. It could be argued that a short form document may even be more user friendly for clients;

> explicit statements ‘scalability’ of advice (limited advice) in the SOA would add clarity and certainty for financial planners. This would be a sensible step to improving affordability of financial advice;

> agreement between the Australian Securities and Investments Commission, FPA members and compliance and legal staff on the essential issues to be included in client documentation rather than inclusion of everything just in case.

Our members prefer appropriate regulation that reflects the nature of the relationship between advisers and clients.

It is an ongoing one built around strategy and addressing clients’ long and short-term needs.

It is in our members’ interests to ensure that their clients have a concise record of advice and a clear understanding of where they are heading financially. It makes good sense for everyone.

Jo-Anne Bloch is the chief executive of the Financial Planning Association.