Radical changes proposed for SOAs

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Advisers struggling to keep up with compliance might soon benefit from a new panel, which will reduce compliance demands by altering SOAs and oversee their use by businesses.

This is the resolution being proposed by the AIOFP, who has been discussing the issue at its Adelaide, Singapore and Siem Reap conferences. According to AIOFP executive director Peter Johnston, current compliance culture in the industry is “too cumbersome, expensive and over complicated”. Johnston says “monstrous” statements of advice are confusing clients, costing too much and drowning advisers in paperwork.

Under the proposed structure, compliance expert Frank Smith will partner with the AIOFP and manage a panel of 15-20 compliance professionals from all states. They will work on reducing the size of SOAs, and will go to businesses on a needs-basis to show them how to build an SOA that is appropriate to the clients’ needs, says Johnston

The association have verbally run the idea past ASIC and Johnston says the regulator wants smaller SOAs. “We had Kate Metz get up at our conference, saying that they believe SOAs should be between two and eight pages…the whole process has been totally high-jacked by the legal community, working on that very flawed situation of hourly rates; which means the more time you’re taking, the more money they make.”

The smaller SOAs will also protect advisers in court, because it is illegal for an adviser to provide a confusing document to the client, says Johnston.

“Compliance is everyone’s ‘Achilles heel’, it has to be right or you face the real possibility of being ‘named and shamed’ or, worst case scenario, lose your business – which seems to only happen to the independents.”

  • Tony Bates on 16/04/2013 10:32:27 AM

    You are correct. We still write 5-8 page documents as if they were SOA's. We clearly state on the cover where a client is wholesale ($2.5m) under s361G. Super Funds may not be wholesale so we can have a crazy situation where we might be advising across several entities and one of the entities is retail even though the client is professional ($10m plus)

  • Pat on 16/04/2013 10:22:11 AM

    Tony, correct me if I am wrong, but dealing solely with sophisticated clients, you do not need to provide SOAs as you would to a retail client. Therefore, you can provide a 1 page executive summary and be compliant. Am I incorrect? If so, can you please point me to the ASIC referencing the SOA requirements for sophisticated investors?

  • Tony Bates on 16/04/2013 10:02:27 AM

    My 5-8 page SOA's are generally for sums of money between $2m and $80m, involving many investment structures and across generations. I am yet to write an SOA longer than 10 pages.

    Alleycat. Listen again to what ASIC is saying amd has been saying consistently for years. Clear. Concise. Effective. Impossible after 10 pages.

  • alleycat on 15/04/2013 11:27:55 AM

    Dear Peter (JH) and TB.
    I'm not saying an SOA has to be 60 pages.
    You can probably cover most complex issues within 30-35 pages. If you give advice on single strategies,basic advice or simple risk advice you can get away with the kind of SOA's you're talking about.

    However you won't with with larger sums of money and multiple risk advice along with more than single strategies.
    Peter, I wouldn't use ASIC as a reference point for anything.
    Their list of failures are on the the public record (e.g. Storm Financial) and you think that a public servant who knows very little about what we all do for a living knows all because they have now set the agenda along with an inept incompetent Labour government.

  • Tony Bates on 12/04/2013 11:44:17 PM

    I have always been unconvinced that a 60 page SOA provides any better protection at all

    Alleycat has provided a good list of the things that I have seen in very compliant 60 page SOA's from bank owned dealers. Have they had less %ge FOS cases, less lawsuits?

    The first five on the list are essential although I stick to bullet points of the most relevant parts driving the core advice rather than regurgitate DCFs. A properly constructed DCF does the heavy lifting already and forms an important part of the file

    Item 6 (consideration of alternatives) needs to be apparent without endless comparisons.

    I spend a full page or more on risks and consideration of risk tolerance and risk capacity.

    The fee disclosures, replacement costs, benefits won and lost, MER tables, potential conflicts and sunset clauses. These are only complex and involved if they are complex and involved. I've seen these run for many many pages

    If you have your own licence and own yourself and are free to advise without conflictts and transparently match fee with service, this can be dealt with in one very short paragraph at the very front of the advice.

    Generally 5 - 8 pages. The SOA I completed today was 7 pages.

    And I sleep at night

  • Peter Johnston - AIOFP on 12/04/2013 11:43:17 AM

    Well Alleycat [JH to your friends], i suggest you speak with ASIC's Kate Metz in Melbourne, you are ill informed.

  • alleycat on 12/04/2013 10:34:20 AM

    If those of you who think "know your client" and "know your product" can be summed up in just a few pages, you're delusional.

    How do you put down, the clients current position, assets/liabilities, cashflow, strategy, recommendations, advantages and disadvantages of recommendations, other options and considerations, description of products/investment recommendations, Risk Profile and what that means in terms of perception of risk, fee disclosures,
    Replacement cost comparisons,Benefits one or lost, MER tables, sunset clauses/potential conflicts, authority proceed and the client sign off and all that is contained in a 2-10 page SOA beats the hell out of me. Peter Johnson if your advising your members to leave any of this out, I suspect the lawyers and ASIC won't be far away

  • Keith L. on 12/04/2013 9:50:47 AM

    Those of us who have been in the industry for a significant period will remember the early advice documents with a touch of nostalgic reflection. My dealer group had a fact find system called a financial needs analysis from which it was possible to provide a hand written 3 page advice document with a few templated headings. The result was a highly personalised, to the point, no nonsense document the client understood, appreciated and usually retained. Because of handwriting issues, I generally loaded the template into a typewriter. All the educational material and other peripheral information was - and predominantly still is - contained in the recommended product's brochure (PDS) and combined application. Non product issues could be referenced from other sources. On the relatively rare occassion when more complex advice was necessary, an appendix to the template was usually sufficient.
    In more recent times, on presenting a prescribed SOA to a client, produced with much effort and expense, The client placed it in the waste paper basket in the interview room with the words, "I don't want all that crap!" I wondered how many other clients held the same view but were not as forthright as her.
    Dealer Groups fearful of litigation are the main cause of voluminous SOA's while their compliance sections, lawyers and the regulators are keeping themselves in a job at client, planner and community expense. I for one am a strong advocate for a back-to-the-future return to a "real" statement of advice.

  • Pat on 11/04/2013 8:36:50 AM

    It would be interesting to see whether the short form SOA, which should be encouraged, is then supported by a raft of appendices that explain all the relevant issues. For example, our SOAs contain between 5-10 pages of advice, but we also have the relevant KYC pages, disclosures, etc. plus appendices that explain super, insurance, etc. That way, the client can focus on the pages containing the advice and refer to the appendices should they wish to.

  • Tony Bates on 10/04/2013 7:30:31 PM

    A senior compliance professional once told me that the hardest thing for clients to find in a Statement of Advice is the advice.

    Matt, I resist restating facts in the data collection form, the FSG or the risk profile analysis. I do refer to relevant conclusions from these documents to the extent they drive my advice

    Education and research is deliberately kept out of the statement of ADVICE.

    About 5 pages passes compliance and we have been reviewed by all the major independent compliance companies.

    It helps that we have our own licence and no conflicts

    For single issue limited advice 2 pages is possible.


  • GAB on 10/04/2013 5:51:00 PM

    Replacement product = 1 page, alternative strategies and products = 2 pages, fee disclosure = 1 page, dealer group disclaimer and disclosures = 2 pages (no advice yet, be patient), title page = 1 page, risk profile = 2 pages, auth to proceed = 2 pages (11 pages still no advice yet), superannuation education section = 2 pages, where you are now = 3 pages. That's 16 pages and I still haven't got to the objectives and advice part yet or attached the research papers (that can't be relied upon we're told...lol)....oh, better add a few pages for cashflow and tax analysis.....I've been telling my dealer group for years to put all the general info and disclosures etc in a standard memorandum type document and kep the advice part in a separate simple document.....think they give a damn? Nope.....because people get paid to create these SOA templates I.e. Xplan, coin etc, your friendly legal team, compliance team.

  • Peter Johnston - AIOFP on 10/04/2013 3:31:10 PM

    Bill, you will be surprised how many have been doing sub 10 page SOA's for many years. The general rule of thumb is if the practice sort advice from a legal based compliance service the SOA are big, that's the cold hard facts.

  • Peter Johnston - AIOFP on 10/04/2013 3:02:23 PM

    Gents, the shorter the simpler the better. The more concise and understandable the less confused is the Judge, ASIC and the client. [not to mention FOS/COSL] All the client has to do is say 'i am confused' regardless of what they sign and you are gone with the Judge normally agreeing with them. The message is clear, keep lawyers away with their conflicted view on life!!

  • Matt on 10/04/2013 12:35:13 PM

    Tony i would really like to know how are you writing a 2 page SOA for any client? How is this viewed by compliance at audit? There is a vast difference in a 2 page discussion paper to providing an SOA which shows you understand the clients circumstances, goals, make even a single recommendation and provide clients with all the required ASIC disclosure.

  • Alvin on 10/04/2013 11:41:49 AM

    There is no way in hell, you can write a risk and super roll over into 4-8 pages. What are you disclosing to the clients, what are you not? A risk SOA is around 10 pages if you do a comprehensive Term Life, TPD, Trauma and IP reccomendation.

  • michael langtry on 10/04/2013 11:38:17 AM

    I write a 2 to 4 page file note about the goals, considerations, strategy, products, costs and relevant benefits, + a projection if relevant. I use this to guide the discussion with the client. If they want to proceed, then I give them the Dealer stipulated 30 to 60 page SoA. The document the client values is my file notes, the SoA is a costly and next to useless piece of verbiage that not even the courts value, and does not provide protection for the client, or me, or the Dealer Group.
    So, ring in the changes!

  • Tony Bates on 10/04/2013 11:13:27 AM

    I have been writing SOA's of two to eight pages for 15 years. The last time I wrote one longer than ten pages was when i had to resubmit to pass DFP6.

    The regulator has always said the industry is writing advice which is too long and is ineffective. Clear concise and effective has been in the regulators language since the beginning of time.

    If a client has not understood the guts of our advice when he/she turns the first page, we have lost him/her.

    Separately we should have on the cover the four or five things our clients should know such as who owns us, who gets paid and how and what limits are placed on our advice

  • Bill on 10/04/2013 1:01:30 PM

    i believe it is essential to give at least a 60 page SOA as we need to repeat ourselves at least 3 times during the SOA. it is important to spend a minor fortune on paper as Office Works would see a downturn in revenue if we only do a 5 page SOA and my paper expenses would drop. my dealer group insists on hard copies being retained so a shorter SOA would mean i'd only need a tenth of the filing space.However the real reason why the majority of us present 60 ridiculous page SOA's is because the dealer group insists and we all are terrified of being sued and losing "browny" points on an audit because we forgot to put a full stop in the correct place. stop talking about small SOA's and get us into the real world...the clients do not want 60 pages of repeat "ground hog day " info....they want a precise recommendation, the outcomes of the advice and what costs were involved.I do not gamble but i bet you all nothing will change soon

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