No need for SOA unless requested: Levy

In her recommendations in the Quality of Advice (QOA) Review, Michelle Levy has stayed the course to do away with statement of advice (SOA) requirements.

Instead, she advocated for advisers to “maintain a contemporaneous record” of advice provided and give the client a written record of the advice if requested. 

The requirement would not apply to those currently exempt from providing SOAs, such as a person providing personal advice about general insurance products.

Levy also stopped short of detailing the way in which clients would need to request for a written record or a specific framework for record-keeping by advisers, suggesting the Australian Securities & Investments Commission (ASIC) should provide guidance on this matter. 

“The obligation is to maintain a record of the personal advice – that is the recommendation or opinion about a financial product or class of financial product,” she noted. 

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“It will be a matter for the provider of the advice and the [Australian financial services] licensee to determine what additional information is kept to evidence why the advice was good advice and, where the advice is provided by a financial adviser, why it was in the best interests of the client.”

Levy added: “I anticipate the records that are kept, and the form in which they are kept, will be determined by the relevant circumstances. For example, for simple advice (such as advice provided by call centre staff at a bank, superannuation fund or insurer) it may be sufficient to retain the audio recording of the phone call as a record of the advice provided. 

“On the other hand, comprehensive advice provided by a professional financial adviser would likely require more comprehensive file notes, which document the client’s financial situation, objectives and needs, the advice provided, research on financial products compared and so on. 

“A one-size fits all approach to record-keeping will not work. It is my hope that this recommendation will encourage anyone who provides personal advice to a retail client to provide advice in the way that suits their customers and clients.”

Under current regulation within the Corporations Act 2001, an SOA was required to be given, with some exceptions, each time a retail client was given personal advice. It would need to include the advice and basis upon which the advice was provided; contact details and name of the providing entity; information on remuneration and other interests that could potentially include the advice provider; and any required warnings about the advice. 

The SOA needed to contain all the information required by the client, in a clear and concise manner, to enable any decision-making on said advice. 

However, advisers had increasingly felt these advice documents were too complicated, too long, and increased the regulatory burden and cost of providing advice. 

Moreover, Levy observed, SOAs were often prepared “with an eye on defending a complaint or claim” to ASIC or the Australian Financial Complaints Authority (AFCA) over client comprehension.

Per the Review’s survey of over 3,000 advisers registered on the Financial Adviser Register, over half said the typical length of the SOA provided to clients was between 41 to 80 pages. 

Among those who advocated for decreased SOA requirements, the majority said clients did not value them (88%) and that SOAs did not add value (81%).