Letters of Advice Don’t Address the Real Problem – Synchron

Recent calls to replace Statements of Advice with Letters of Advice don’t address the underlying cause of the problem, according to Synchron.

The firm’s new General Manager – Compliance, Phil Osborne, says calls by some industry commentators to move to a ‘Letter of Advice’ are “…simply playing with semantics,” as he notes that the Corporations Act already requires advisers to have an SoA that is ‘…worded and presented in a clear, concise and effective manner.’

He says that discussions around what to call the advice document “…don‘t actually address the core issue – which is the unnecessary length and complexity of Statements of Advice. Calls for a ‘Letter of Advice’, while highlighting the issue, is looking in the wrong place for the cause of the problem.”

Osborne says that Synchron believes the solution is far simpler than a name change.

He says the industry can either take years going through the process to discuss and legislate and change the name of the document, “…or we can act today and choose to follow what the Corporations Act already requires us to do, and that is to have an SoA that is, ‘worded and presented in a clear, concise and effective manner’.”

Osborne referenced section 947B/C(6) of the Corporations Act, the section that directs that a Statement of Advice must (not “could” or “might”) be clear, concise and effective; something that Synchron sees as being generally ignored by industry compliance regimes.

…Section 947B/C(6) is as much a legal requirement as the need to act in the client’s best interests…

“Section 947B/C(6) is as much a legal requirement as the need to act in the client’s best interests (section 961B) or to provide additional information in the event of recommending a change of financial product (section 947D),” he says.

“Yet for some reason, compliance regimes don’t seem to recognise this, instead requiring more and more to be included in the SoA – not for the benefit of the client, but for the sake of so-called ‘best practice’.”

The statement adds that Osborne sees a big part of his role at Synchron as recognising where the advice documentation in place doesn’t meet this obligation, and to develop versions that will both meet the letter and spirit of the legislation, while creating a better experience for both advisers and their clients.

He argues that what seems to have been forgotten is that best practice is about what’s best for everybody. “We need to consider what is best for the client and best for the adviser,” he says. “A purpose that a shorter document would definitely serve.”

Don’t Blame the Disclosure Regime

He adds that blaming the disclosure regime also misses the mark. “Regulatory Guide 175 is clear when talking about disclosure and the need to be clear, concise and effective, directly in keeping with its counterpart in the legislation,” he says.

“While everyone is very quick to point fingers at legislation and the regulator, that isn’t where the blame lies.”

He says that the work that ASIC has done recently on advice documents as part of its affordable advice project “…has highlighted that they don’t believe long documents are in the best interests of the client either, regardless of the disclosure regime.”