FAAA, SIAA urge further review of advice documentation

Despite the government agreeing to reform financial advice documentation, two associations believe greater streamlining is needed to have a positive impact.

Responding to Tranche 2A of the Delivering Better Financial Outcomes (DBFO) draft legislation, the Financial Advice Association of Australia (FAAA) argued the government’s shift to client advice records (CARs), replacing statements of advice (SOAs), will not lead to significant improvements for advisers.

It noted that while the original Quality of Advice Review recommendation was to remove the obligation to provide advice documents entirely, unless requested by the client, the government instead opted to replace SOAs with a more fit-for-purpose, principles-based advice record.

“In our view, this draft legislation does not align with this objective, given that the level of prescription and inputs into the renamed ‘Client Advice Record’ remain essentially unchanged compared with the current requirements for a ‘Statement of Advice’,” the FAAA’s submission stated.

Although this issue may be addressed further in Part B of the DBFO tranche, the association argued the draft legislation alone does not appear to materially reduce the size or complexity of advice documents.

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“It will nevertheless require advice licensees to make expensive and time-consuming changes to a number of templates in their businesses, even if all they are required to do is replace the term ‘Statement of Advice’ with ‘Client Advice Record’, everywhere it appears, including with respect to financial planning software and CRMs.”

As such, the FAAA urged the record of advice obligations to be reviewed and said the opportunity to utilise records of advice should be “substantially expanded” to better enable the use of streamlined advice.

“Every effort must be made to sensibly rationalise what needs to be included in an advice document.”

In addition, the association said sufficient time must be allowed for adjustment to major reforms, such as a potential one-year implementation period.

“In the case of the proposed changes to advice documents, a 12-month implementation period is reasonable, however we note that ASIC’s updated regulatory guidance being finalised is also a key requirement for effective implementation. If this guidance is delayed, then 12 months from the date of Royal Assent might not be sufficient,” the submission wrote.

“This could be handled by ASIC adopting a facilitative approach to compliance that should apply until 12 months after commencement. At the same time, those who are ready to implement the changes sooner, should be able to do so.”

The FAAA’s criticisms align with the Stockbrokers and Investment Advisers Association’s (SIAA) own submission response to the DBFO reforms.

SIAA said the bill fails to deliver on the government’s aim of a clear and concise advice record and instead “merely tinkers around the edges of the existing provisions”.

Its submission unpacked: “Unfortunately, while there was potential to effect a fundamental change to the advice process, we don’t consider that this change is reflected in the bill. The bill falls short of enabling more Australians to receive advice as it merely tinkers around the edges of the existing provisions.

“It does not deliver on the government’s intent of a clear, concise and fit-for-purpose advice record. This is unfortunate because it is unclear when another opportunity to change the advice process will occur.”

Having compared the bill against current requirements, SIAA’s members reported “very little change” to their regulatory obligations as a result of the new CAR model.

“This is a disappointing outcome from two years of regulatory review,” the association continued.