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Calling on the regulators
In addition to changes at the licensee and practitioner level, there are a number of things that can be done at the regulatory level to improve the accessibility of advice.
A number of these stem from sensible regulatory requirements, that struggle to make sense in the context of an SOA, being read by a layperson from start to finish.
Firstly, we have a requirement to include the basis on which advice is given in the Corporations Act, but when we get into the detail of that section at RG 175 it includes a couple of things that could be reconsidered.
We are required to include a summary of a client’s position. Whilst it’s important that we confirm the client’s position at some point, it’s worth asking the question: Does this need to be in the SOA? In the RG90 example SOA this covers two pages, and adds little value to the client. Less could be more here.
We are also required to include a statement regarding best interests. In ordinary speech and writing, we talk about why a strategy would be beneficial. However, to ensure this section is adequately addressed most licensees and advisers include a specific section to confirm that this need has been met.
The end result is an SOA that doesn’t read well and can be confusing. We discuss what we’re doing, the headline reasons in normal language, then round back (either at the same section, or at the end), to cover why it is in their best interests.
If the advice needs to be in the clients best interests, do we also need a statement in the SOA to state that it does? Does this become a complicating layer which does more harm to the SOA than good?
Secondly, we have a requirement to state warning required by the Corporations Act where information is inaccurate or incomplete.
Whilst the requirement to disclose this may be relevant, to require this in the SOA explicitly runs counter to other goals in regulating the advice process. Best practice could be to warn in relation to this at the fact-finding stage, where it’s needed most, as it would enable the client to provide information before the advice has been prepared. However, should an adviser make this warning prior to the SOA, they are still forced to declare it within the SOA itself, which is at best repetitive, and at worst confusing.
Thirdly, the requirement to recommend replacement of one product with another from Corporations Act 947D even in circumstances where products are not like-for-like.
This creates nonsensical outcomes in SOAs in practice, where comparisons simply struggle to make sense.
For example, when the client’s goal is to commence a regular income stream, and we simply move the client’s superannuation product to the linked pension product, we need to make a comparison. In a multi-strategy SOA, this may not make sense at the point it’s being read.
Similarly, when the client’s goal is to contribute to superannuation so they can effectively save for retirement, we may still find ourselves comparing a term deposit with a superannuation account. The term deposit is clearly an ineffective mechanism to achieve the client’s goal, but still we require this in an SOA.
The end result, especially in a multi-strategy SOA, is often confusing and distracting.
We’d also like to call for further examples of Statements of Advice to compliment the one existing example SOA we have in RG90 which cover a broader range of advice types. At present, we only have one with a more narrow scope than most advisers are used to.
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