May 31, 2017
ASIC has released a new sample Statement of Advice (SoA) for life insurance which highlights prominent and upfront disclosure of commissions while omitting a range of disclaimers and warnings.
The regulator released the sample SoA along with a new consultation paper which details proposed changes to Regulatory Guide 90 (RG90) which covers the creation and use of SoAs in limited advice situations.
In releasing the sample SoA, consultation paper and draft changes to RG90, ASIC has also given the financial advice sector a one-month window to provide feedback before making further changes ahead of a final release in September 2017.
ASIC said the consultation paper sets out the rationale for updating RG90 which would result in the current example SoA being replaced with a new example SoA for scaled advice for life insurance for a new customer in the regulatory guide.
The consultation paper stated that despite ASIC’s guidance on SoA’s “…many financial advisers were still producing SoAs that were too long and complicated” and shorter SoA’s were recommended as part of the Trowbridge Report and the Life Insurance Framework reforms.
“We believe that an SoA should be confined to explaining the advice and the basis for the advice.”
“SoAs that are too long and difficult to understand detract from customer engagement and may lead to poor decision making,” the consultation paper stated, adding that in the development of the new example SoA, ASIC has used simple, plain language and a structure that is easy for customers to follow.
The paper also stated that ASIC looked to reduce the length of the example SoA by excluding unnecessary information including disclaimers, warnings, financial product information and information about financial services provided.
ASIC stated these belonged in product disclosure statement and financial services guides and it had “…excluded this information because it is not designed to help the customers understand (and decide whether to rely on) personal advice.”
“We believe that an SoA should be confined to explaining the advice and the basis for the advice. This means that we have not included any information in the example SoA that does not satisfy this purpose”, the regulator stated in the paper.
The new SoA was designed using behavioural research into how people find and understand the information in SoAs, ASIC stated, before being tested with small groups of consumers and advisers.
The sample SoA, consultation paper, and draft regulatory guide is available here and comments close on 31 July.