Not long ago, we asked two members of our community about the changes needed in current advice legislation to prioritise and improve the client experience.
In that discussion, both Story Wealth Management CEO Anne Graham and Integra Financial Services co-founder Deborah Kent pointed to the SOA as a clear example of how increasingly onerous compliance requirements have made the advice process less intuitive (and enjoyable) for clients. Rather than being useful and legible documentation of goals and strategies, the SOA has become, in Anne’s words, “a doorstop – a written document no one reads unless you get sued.”
According to JBS Financial Strategies CEO Jenny Brown, the problems of paperwork and red tape are further compounded by the fact that there are no standardised, cross-industry methods for meeting these requirements. She argues the amount of paper a client needs to see would be significantly reduced if advisers were able to “use digital signature software with two-factor authentication (2FA) for all account opening and ongoing arrangements like annual advice arrangements.”
At the moment, though, everyone has different ideas about how client consent and authorisation should work.
“Many platforms,” she says, “insist on using their forms and wet signatures. If we can get a consensus on using an adviser/licensee form that contains all the required information with investor numbers, last year’s charges and next year’s charges that’s signed digitally with 2FA and an audit trail for security, why is there an issue with that?”
As an example, Jenny says JBS uses the digital signature tool FuseSign, which is “significantly cheaper than DocuSign, has 2FA to a mobile phone and provides an audit trail. Netwealth accepts this but most other platforms we use don’t.”
She says these inconsistencies result in JBS having to use multiple systems to deliver compliance. This, in turn, “adds time to what we do, removing the ability to spend more time with our clients.” While her clients understand why all this added complexity is necessary, Jenny says it’s undeniably an “inconvenience to them.”
Obviously, one of the bigger opportunities to see some of this complexity addressed in the next few years is the Quality of Advice review, the final terms of reference for which were issued just a few days ago. While the final document is quite similar to the draft terms of reference released late last year, there have been a few surprising carve-outs.
Per the final terms of reference, the review will now exclude any recommendations regarding the professional standards framework, the single disciplinary body, reference-checking and licensee breach reporting. It also won’t consider changes to the definitions of “retail client”, “wholesale client” and “sophisticated investor”, nor will it examine financial services redress arrangements or how taxation and privacy laws apply to financial advice.
On the one hand, some exclusions to the QAR’s mandate are expected given how much its scope has expanded since it was first announced. And this might assuage concerns that Treasury was biting off more than it could feasibly chew by the end of 2022.
But as the AFA pointed out in its response to the final terms of reference, cutting the professional standards legislation out of the review means “it is now entirely in the hands of the Minister to resolve the education standard for financial advisers and we remain hopeful that this will be resolved in the short term.”
The limited evidence available so far suggests there may be scope for further changes to professional standards in the near future – due to election pressure if nothing else. But if advisers and industry representatives were hoping to take an active role in making the post-FASEA landscape more accommodating to existing advisers, new entrants and specialist providers, these changes to the review are likely to be disappointing.
What’s still included in the review, though, is enough to facilitate a major reduction in the amount of red tape advisers and their clients currently have to deal with. An appealing prospect if, like Jenny, you’ve seen enough “reams of paper” for one lifetime.
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