Clarity on disclosure requirements vital in Quality of Advice Review
The review’s consideration of how to simplify documentation and disclosure requirements for advisers and clients could significantly impact the advice process, according to BT.
The terms of reference state that the Quality of Advice Review will investigate how to simplify documentation and disclosure requirements “so that consumers are presented with clear and concise information without unnecessary complexity”.
They also state that it will examine the legislative framework for financial advice around the statement of advice, and fee disclosure and consent requirements, including reforms to introduce annual renewal of ongoing fee arrangements (Royal Commission recommendation 2.1).
Speaking to SMSF Adviser ahead of the SMSF Adviser Technical Strategy Day 2022, BT head of financial literacy and advocacy Bryan Ashenden said that advisers have been caught in a web of trying to understanding what they need to disclose, where they need to disclose it, and how much detail they need to provide when disclosing certain information during the advice process.
“It's not that the advisers don’t want to make disclosures, but we want to know how frequently we need to do it,” Mr Ashenden said.
“Part of that is being driven by a sense of fear about being at risk or being subject to a review, with ASIC coming in to look at my files if I don’t include everything in every document. It’s led to a fear of not disclosing enough information.”
As a consequence, this has resulted in lengthy disclosure documents like the statement of advice, and detracted from the intent of advice, which is to “effectively and efficiently” convey the recommendations that an adviser has made to the client.
For example, there is ambiguity around the level of disclosure required around advice fees, with Mr Ashenden asking whether an adviser is required to disclose fees by underlying product or whether they can provide details at a higher level around the amount of fees the client will pay for the advice, as well as how those fees would be divided between the licensee and the individual adviser.
“Do we really need a lengthy discussion about how much the adviser is going to charge, or can we keep it short and simple? Of course, the client should be able to request more detail if they want it, but do we really need to have it all in there as a starting point? I think that's the question,” Mr Ashenden argued.
Moreover, he questioned whether advisers should include the client’s personal information in the statements of advice, which could stretch to five or six pages.
“Instead, we could just include relevant facts that need to be restated,” he posited.
“Again, if the client wants more, we can provide it. But how can we only include relevant information around the advice itself as a starting point, and take all of this other information out?”
In a session at this year’s Technical Strategy Day, Mr Ashenden will provide advisers the latest SMSF legislation and policy updates to ensure they are ahead of the regulatory curve, as well as an examination of recent ATO guidance and announcements.
Mr Ashenden concluded by noting that the terms of reference in the Quality of Advice Review will not make recommendations on changes to the definitions of 'retail clients', 'wholesale clients', and 'sophisticated investors', including income and asset thresholds.
These questions are sometimes relevant for SMSFs and whether it is appropriate to classify them as a wholesale client.
“It hasn’t been included at the moment, but it doesn’t mean the government won’t look to do something separately on that in the future,” Mr Ashenden said.
“But it's also important to look at what is going to be achievable in this review. If we expand the terms of reference too wide, we may run the risk of not actually getting any meaningful reform.”
To arm yourself with the latest legislative and policy updates in the SMSF landscape as well as a comprehensive overview of the various consultations being undertaken by the government and what it means for the sector, come along to the SMSF Adviser Technical Strategy Day 2022.
It will be held on Thursday 6 October at Crown Towers in Melbourne, Friday 14 October at the Four Seasons Hotel in Sydney, and Wednesday 26 October at the Brisbane Convention and Exhibition Centre.
Click here to buy tickets to the conference and secure your spot today!
For more information about the conference, including agenda and speakers, click here.
