Pricing a Statement of Advice by Julie Matheson
A Statement of Advice is a legal report based on the Corporations Act 2001, Chapter 7 s947B which all Australians must receive within 5 business days if they seek advice from a registered Financial Adviser or Financial Planner. The penalties if a Statement of Advice is not provided include penalty costs up to $1.11million for individuals or three times the benefit obtained or detriment avoided, imprisonment for up to 15 years, banning from the profession by ASIC or deregistering from a Code Monitoring Body and unable to practice.
Clarisse Berenger wrote a thought provoking article in IFA on writing a shorter Statement of Advice based on Chapter 7 of the Corporations Act and ASIC regulations. These are Clarisse’s practical tips on cutting down the number of pages in a Statement of Advice which I have condensed to a list:
- The title on the front cover to be Statement of Advice
- Your licensee number, Authorised Representative name of person responsible for the advice and contact details
- Basis for the advice, what you are recommending and why it serves the client’s best interests
- The advice covering strategic and product advice
- Consequences of the advice including product replacement, if any, if it can be proven necessary including charges, loss of any benefits and the consequences of doing so
- Disclosure of conflicts, remuneration for writing the Statement of Advice, benefits to you or related persons that might reasonably be expected to have influenced the advice you have provided. Information must be disclosed in dollar amount and the client must give their informed consent.
- Any relationships which “might reasonably be expected or be capable of influencing” the advice you have provided must be disclosed
- Warnings must be included when the advice is based on incomplete or inaccurate information provided by the client in relation to the objectives, financial situation or needs
- The advice must be written clearly, concisely and effectively
- Limiting the safety net disclaimers like non-guarantee of future returns, projections are based on estimates, outcome being subject to regulatory changes and the list goes on. Instead include disclaimers in the FSG, client service agreement or engagement letter.
- Record information like advice checklists, product comparison analyses and other extraneous information which “evidence” that the adviser has done the right thing in file notes rather than in the Statement of Advice
After cutting down the number of pages, you might be asking what’s the price or cost of the Statement of Advice? Clarisse didn’t say but we need to know. So let’s investigate costs and apply the Code of Ethics 2019 to the humble Statement of Advice.
Australian Financial Services Licensees use Statement of Advice templates to avoid penalties for not providing the report on time or at all. These templates are often 100 pages long and put together by paraplanners and client service officers. Some Statement of Advice reports are then subject to peer review depending on complexities and how many laws can be broken if the advice is not right for the client. All of this adds to costs of a Statement of Advice.
Code of Ethics
After the Hayne Banking Royal Commission another layer of costs were added with FASEA’s Code of Ethics
This list of 9 steps out of a possible 60 steps to provide just one piece of advice in Australia without breaking the law adds to the costs to writing a SOA:
- Evidence that the adviser is qualified to provide the advice in the Statement of Advice including registrations for example Tax Practitioners Board and ASIC’s Financial Adviser Registration numbers, probably on the front page might be useful, Standard 10
- A reference to the Terms of Engagement, Standard 4
- The client’s relevant circumstances, needs and objectives (personal balance sheet, Income and Expenses) Corps Act s961B(2)
- Evaluate the client’s current strategy or lack of one
- Projections or modelling to prove that the client would be better off by adopting another course of action or stay the same, Standard 5
- An explanation that the fees, charges and benefits are fair, reasonable and value for money, Standard 7
- Pricing the services required to implement the advice, Standard 7
- Next steps after variations to the advice, if any, Standard 5
- Ongoing Service required to check the advice is on track to meet the client’s relevant circumstances, needs and objectives, Corporations Act s962A
According to research conducted by Core Data, the minimum cost to provide advice in Australia so far is $3,757 after the Code of Ethics was introduced in 2019
Back in 2001, advice was free and paid for by commissions from products. In 2021 only the wealthy or retirees can afford advice because the cost of providing a Statement of Advice for just one piece of advice is out of reach for the average family in Australia. Your comments on this subject are welcome. Thank you for listening.