The Association of Financial Advisers (AFA) has used its submission to the latest Parliamentary inquiry into financial advice to call for a review of adviser disclosure obligations, such as the provision of Statements of Advice.
The Scrutiny of Financial Advice Inquiry, being undertaken by the Senate Standing Committee on Economics, was established in September 2014. Its purpose is to investigate the implications of financial advice reforms, focusing on current consumer protections and the mechanisms that have been employed to deal with inappropriate and unethical financial advice.
The majority of submissions to the inquiry have focused on the work that has been undertaken by the industry to date to improve the quality of financial advice. In particular, submissions from Australia’s ‘big four’ banks, AMP and Macquarie mostly contained reports on the progress of internal initiatives developed in response to earlier Parliamentary inquiries.
However, one of the key recommendations put forward by the AFA to protect consumers from further misconduct is for the government to review the current disclosure obligations that apply to financial advisers.
According to the AFA, SoAs are not serving the purpose for which they were established, because consumers are not reading them, or they do not understand them. SoAs were introduced to assist retail clients to understand, and decide whether to rely on, personal advice.
‘We recommend that action is taken now to review SoA requirements to ensure that they can be more concise and can be effective in communicating key information to clients,’ the AFA said.
‘More effective SoAs will also play an important role in clients better understanding the advice they have received, the risks that they are taking, and the key issues that they need to consider before making important decisions.’
…an SoA has become an unnecessarily long compliance document…
Australia’s two largest professional accounting bodies also called for a review of SoAs, and other disclosure requirements implemented by the 2001 Financial Services Reform (FSR) Act:
‘The reality is that an SoA has become an unnecessarily long compliance document that an Australian Financial Services licensee and financial adviser use as part of their audit trail for protection from potential litigation. The flow on effect of these lengthy SoAs is the additional compliance measures to prepare the advice, which results in higher costs to provide the advice, yet the SoA does little to enhance the consumer understand of the advice they are receiving. This raises the question as to whether the SoA in its current form is delivering the disclosure benefits as originally intended for both the consumer and the advice provider…’
Submissions to the Scrutiny of Financial Advice inquiry have now closed. A report is expected from the Committee in July.
The pre 2004 CAR is looking very attractive
It is a sad fact that nearly all clients do not read the SOA’s. WHY?
They are too legalistic and cover so many things that clients have no idea what it all means.
Lawyers are trained a certain way to write legal documents, which is fine for them. The only problem, is the rest of the world has no idea what the words say or mean.
The legal profession is a closed shop that has taken over all aspects of our lives and rather than protect the interests of all parties, all they succeed in doing, is confusing everyone and just to rub salt in the wounds, charge exorbitant fee’s to HELP US produce illegible mumbo jumbo that needs a court to decypher if a problem occurs, with the assistance of solicitors who need to utilise a barrister, at our expense, as after all, a simple solicitor could not be expected to know the law and understand the complex wording in these documents.
The legal eagles then train the Insurance Companies internal teams who write the inserts that are put into SOA’s with the end result, no-one reading it anyway.
A overhaul of SOA’s is overdue, though may I suggest that if we want clients to read and understand their SOA, then we should not put legal people in charge to do it.
Compare the verbiage of an SoA with zip from an On Line General Advice purchase of insurance, which may not result in the best interest of the consumer. We live in parallel universes.
‘More effective SoAs will also play an important role in clients better understanding the advice they have received, the risks that they are taking, and the key issues that they need to consider before making important decisions.’
I sit with my clients and make them read the important advice parts of the SOA, as I don’t like to do them for nothing.
This is a great call by the AFA. Disclosure documents are not useful nor are they a point of differentiation (you could argue that differentiation is a moot point anyway considering how few times clients switch between advisers)
Similar to consumer credit schedules SOA’s should be shortened and standardized.
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