SOAs: overkill on advice?

When consultant Pauline Vamos received a copy of the Australian Securities and Investments Commission’s Financial Services Reform (FSR) Policy Statement 181, she was as much intrigued by its existence as by the information it carried.

A former ASIC director of FSR licensing, Vamos could not believe the corporate regulator thought it necessary to produce a policy statement “exploring in detail” how FSR licensees should manage conflicts in the workplace.

Addressing the 4th Annual Independent Planning Practices Conference in Sydney this month, Vamos held up PS 181 as a mirror to the “prevailing distrust” between ASIC and the financial services sector.

“Managing conflicts is fundamental to what financial advisers do in running their businesses, and as such it was unnecessary and patronising for ASIC to formalise it in an FSR policy statement,” Vamos said.

Now an FSR consultant to industry, Vamos added that there was a “climate of fear” among planners over FSR, which has prevented the regulations from achieving their purpose of raising standards.

She said planners are now “so fearful of losing a licence or getting a licence under FSR that they are more focused on the nitty gritty of compliance rather than on the outcome of their business decisions”.

“As a result, we’ve seen huge growth in the size of statements of advice (SOAs), which are currently an exercise in covering planners’ common law liability as well as meeting their legal obligations under compliance.”

Vamos attributed the blow-out of SOAs to the compliance fears among planners driving them to mistakenly “re-badge their planning documents as their SOAs”.

“A statement of advice is a disclosure document,” she told her audience. “It is not a planning document, which is what you provide to a client to develop that relationship going forward.”

“The law says an SOA must be a concise summary of the advice process, but it does not say you have to deliver all that process to your client within an SOA,” she continued.

As the first anniversary of the introduction of FSR approached however, many in the industry are at issue with the clarity of the regulations, notably SOAs.

Others believe any issues industry has with the regulator are unrelated to its understanding of the FSR requirements, but rather its ability to meet these requirements.

However, most believe FSR has so far been a good thing for the financial services industry in terms of raising educational levels and increasing transparency for clients.

The respondents also broadly welcomed last month’s statement by Parliamentary Secretary to the Treasurer Chris Pearce of proposed refinements to the legislation, including revisiting SOAs.

A current lack of any “materiality provisions” in the new regulatory regime goes to the heart of industry reservations over SOAs, according to HLB Mann Judd Consulting senior manager Corrina Dieters.

Also chair of the Financial Planning Associations’ SOA taskforce, Dieters said this lack of materiality had left FPA members confused over exactly when advice to clients requires the preparation of an SOA.

“We are trying to get clarification from the regulator over whether any and all advice given to a client requires an SOA or if it is unnecessary in circumstances where the advice is insignificant.”

“Currently, planners cannot use their discretion because the Act says that whenever they give advice that may influence a client it has to be in the form of an SOA,” she said.

Dieters welcomed the recent class order on Statements of Additional Advice (SOAA) for allowing reference to pre-SOA documents, such as a financial plan, and thus allowing for abbreviated SOAAs.

She said the FPA taskforce would be petitioning the regulator over whether the same sort of referencing can apply in an SOA.

The FPA’s FSRA manager policy and government relations John Anning said the implications of some FSR regulations will “not emerge until we’ve lived with them a bit longer, but others are clearly not working at all well”.

Anning said it is “obvious that SOA regulations are currently too prescriptive to take into account all the situations where statements of advice are required”.

He said dollar fee disclosure, which is due to launch on July 1, is an example of “a grey area, where we’ll need to see how the regulation works in practice to judge it a success or otherwise”.

He said most FSR concerns by FPA members related to SOAs, but the FPA had also made submissions to ASIC on managed discretionary advice.

In addition, some larger institutional FPA members have concerns over product disclosure statements and the Financial Services Guides.

Damian Cullen, director of Sydney-boutique Cullen Financial Planning, said a number of FSR regulations are “less than crystal clear”. This lack of clarity has left planners to try to interpret the regulations for compliance, he said, which is responsible for blowing out the size of SOAs to “impractical” levels.

“My view is I’d rather give a client a useful document than an onerous one, but each time I do so I’m effectively taking a risk that I have met ASIC’s interpretation of compliance standards.

“If you take five or six client calls in an hour, and try to jot down your advice as you speak, there’s always going to be a risk you’ll omit something important.”

Cullen said ASIC’s recent class order on SOAAs “hasn’t made any difference” as far as his interpretation of the regulations is concerned.

Jo Tuck, director of Menico Tuck Financial Services, Cairns, said her ability to react to situations on behalf of clients has been lengthened by SOAs.

“We’re not able to get strategic advice out to clients as quickly as we would like for all the paper work we are involved in — even with the new class order on SOAAs.”

“On the other hand, clients are saying we don’t want this much paperwork — they’re up front about it, but we are obligated to send them a certain amount.”

Advance Asset Management head of product Sue Mieog described the financial services industry as being on a “roller-coaster of regulation, whether it’s FSR, international accounting standards, anti-money laundering, unit pricing and conflict of interests”.

“It would be lovely to see some simplicity going forward from the regulator — such as getting rid of the super surcharge, which would make super a lot more simpler.”

As with others in the industry, Mieog expressed her anger that other sector professionals have been given exemptions from the FSR regulations.

“I don’t know what financial services has done wrong as a sector to have been so carefully targeted by the regulator.

“Stockbrokers seem to be able to get exemptions from the FSR, and accountants can give advice without putting it into writing, and solicitors too.”