Shorter statements of advice and the meaning of life
18/08/2008
Recent news that The Boutique Financial Planning Principals Group (BFPPG) had done a deal with ASIC over the contents of their model Statement of Advice (SoA) shows yet again that what should or should not be in an SoA has replaced ‘the meaning of life’ as the issue that most concerns us in the 21st Century.
It also shows - yet again - that while everyone agrees on the ideal characteristics for an SoA, no-one wants to be the first to put themselves at risk by promoting those characteristics if it means that there could be the slightest possibility of legal liability for so doing.
The SoA is where the three main arms of the financial services regulation come to do battle. The Federal Government, the government’s quasi-autonomous regulator (ASIC) and the industry bodies (like the FPA and the BFPPG) have been arguing about what should be in an SoA since the wretched things were first introduced into the Corporations Act in 2002.
Now the Federal Government has announced that it will “streamline disclosure requirements in the financial services sector”, but no-one is sure as to exactly what that will mean or how it will be assessed.
Part of the issue is that no-one quite knows what an SoA is. The Corporations Act definition is: “A Statement of Advice means a Statement of Advice required by section 946A to be given in accordance with subdivisions C and D of Divisions 3 of part 7.7”. Helpful, yeh? You might remember Groucho Marx contract where “the party of the first part is herein referred to as the party of the first part”.
Although Subdivision D purports to set out the contents of an SoA, the problem has always been the level of detail required. I recall very well the government and ASIC suggesting that the early 200 page versions of SoA’s were all the fault of the lawyers. Talk about buck-passing. The government brings down an unwieldy and unclear law and ASIC threatens everyone about non-compliance, but when the legal profession advises their clients on the most prudent way of complying the profession somehow becomes the villain. It was scapegoating of the worst order.
If there is to be any real benefit from the latest promises of streamlining by the government they will need to be a lot clearer about what they want clients to be told. Neither the legislators nor the regulators can blame advisers if they adopt a prudent approach in order to protect themselves legally, even if that means producing documents which clients can’t fully understand. If the government wants simpler SoA’s then it has to be prepared to provide legal protection for advisers who produce them.
The issue here is the legislative and regulatory scheme we have adopted in this country which combines legislation written in general terms with a powerful regulator who “fills in the gaps” in that legislation and becomes a quasi-legislator itself. I have written on this previously in this column (IFA 338, November 6-12, 2006).
ASIC is so influential that the BFPPG has accepted a ‘gentleman’s agreement’ not to force the BFPPG to change its model. In other words, don’t worry about what the law says, the important thing is that ASIC either agrees with you or, if they don’t, then agrees not to take any action.
Apparently the reason that ASIC has chosen this ‘gentleman’s agreement’ route for the time being is because presumably the new ‘streamlined’ versions of the SoA will allow the BFPPG’s interpretation and the issue won’t be so controversial.
So what are advisers after? Very simple – certainty. They want to know precisely what they are to include in an SoA. They don’t want stipulated information that can then be interpreted differently by different people and particularly that can be interpreted or embellished by ASIC. They want, need and are entitled to know exactly what the government wants them to supply to clients and therefore how they can comply with the law.
Media-influenced knee-jerk laws designed to gain political advantage and which make compliance extremely difficult are bad laws because they go to the very heart of a democracy’s obligation to its citizens to explain to them what their legal obligations are and how to comply with them.
What does the Government want? It wants consumers to know as much as they reasonably can in order to decide whether or not to proceed with financial advice and investments. In all laws there is an overriding requirement for reasonableness. We couldn’t produce a perfect system even if we could afford to do so.
It is always about where you draw the line to decide what information it is reasonable to provide and what is too much. The line should be drawn by the government, not their watchdog, and should be clearly and precisely communicated to all participants in the industry and the public.
If you would like more information, please do not hesitate to contact Townsends Business & Corporate Lawyers on (02) 8296 6222.