The debate between Letters of Advice or Statements of Advice
Recent commentary about Letters of Advice is “playing with semantics” and misses the crux of the Statements of Advice (SOA) issue, according to Synchron.
The issue was in the news last week after Centrepoint Alliance group executive advice, Paul Cullen, said a scalable, succint Letter of Advice would be a better option than an SOA.
But Phil Osborne, Synchron’s new general manager of compliance who joined this month, said the solution to the SOA saga was simpler than a name change.
“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,” he said.
“We 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, which directed that an SoA ‘must’ be clear, concise and effective; something that Synchron saw as being generally ignored by industry compliance regimes.
“[The section] is as much a legal requirement as the need to act in the client’s best interests… or to provide additional information in the event of recommending a change of financial product,” he said.
“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’.”
Osborne saw 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 would both meet the letter and spirit of the legislation, while creating a better experience for both advisers and their clients.
He argued that what seemed to have been forgotten was that best practice was about what was best for everybody.
“We need to consider what is best for the client and best for the adviser. A purpose that a shorter document would definitely serve,” he said.
Blaming the disclosure regime also misses the mark, according to Osborne.
“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 said.
“While everyone is very quick to point fingers at legislation and the regulator, that isn’t where the blame lies.
“The work that the Australian Securities and Investments Commission (ASIC) has done recently on advice documents as part of their 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.”
Recommended for you
Two industry executives have highlighted why financial advice practices are less focused on adviser recruitment, as technology means they can service more clients with fewer staff.
Despite fears under the first draft QAR bill, ASIC has confirmed that it does not expect superannuation trustees to check every Statement of Advice.
Iress has signed a three-year extension of its agreement with Count, enabling the financial services firm to continue using advice software Xplan to support its growth ambitions.
Single adviser-led firms continue to expand their footprint in the Australian advice ecosystem, Adviser Ratings research shows, as market conditions prove favourable for boutique practices.
