Assurance needed of regulatory confidence in CARs
Attempts to simplify advice documentation are unlikely to succeed unless advisers are confident they can produce shorter documents without fear of penalisation, believes the Financial Services Council (FSC).
In a submission from the FSC responding to the Treasury’s second tranche of the Delivering Better Financial Outcomes legislation, the body commented on the introduction of the client advice record (CAR).
These are intended to be clearer and simpler than a statement of advice (SOA) as well as more client-focused.
The FSC agreed with the Treasury that this would “drive innovation, reduce costs, and make advice more inclusive”, supporting the government’s goal of broadening access to financial advice.
In its explanatory memorandum, the government clarified a CAR must include:
- The words “client advice record”.
- The scope of the advice.
- The advice.
- Reason for the advice, including how it meets client objectives, financial situation, and needs.
- Cost of the advice to the client and benefits received by the provider.
- Name and contact details of the providing entity, as well as information regarding whether they are authorised representatives.
But the FSC believes advisers are often hesitant about reducing the amount of information they provide as they are aware this will be relied upon by ASIC and the Australian Financial Complaints Authority (AFCA) in the event of any problem.
Harvey Russell, policy director for financial advice and strategic advocacy, said: “The problem of overly complex SOAs and CARs is not solely the result of primary law. A key driver has been regulatory scope creep, which has led to the inclusion of content in advice documents that goes beyond what is legally required.
“For example, advisers often include additional detail in SOAs because AFCA tends to rely heavily on the SOA itself, rather than the broader client file, when assessing advice complaints. Similarly, ASIC’s guidance and informal expectations have, over time, influenced the structure and content of advice documents in ways that extend beyond the requirements set out in the law.
“Addressing these issues is essential to achieving meaningful simplification of the CAR. Without a concerted effort to realign regulatory expectations with the core statutory obligations, attempts to simplify documentation will likely fail. It is essential that advisers are not penalised for producing shorter, clearer documents, provided they still meet legal standards.”
It said the record of advice (ROA) framework should be harmonised with the CAR requirements and simplified by shifting the existing threshold from “significant change in client circumstances” to “significant change in recommended strategy” to reduce confusion and compliance risks.
AUTHOR
Laura Dew
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