The SOA – Worse Than Useless
A major personal concern of mine (being self-employed and having dependents) is the adequacy of my insurance cover. What I would like to do is to speak to a quality adviser for 30 minutes and get oral or very brief written advice about what I should be doing. I would, of course, be happy to pay a reasonable fee for that advice. But I’m not able to do this because my adviser will have to give me a SOA and charge me a lot of money to prepare this document, this being something that I don’t need or want.
The idea behind SOAs was that the very obvious deficiencies in the way that financial advice was being provided could be cured by requiring advisers to produce very detailed written advice that, among other things, would disclose the conflicts of interest that did and continue to riddle every aspect of the financial services industry. The irony of all of this being that I can see my doctor literally about a life or death issue and I don’t have to receive any documents but if I want to get advice about my insurance coverage I have to pay for a 40 page document that I don’t want or need. More generally, every client who has received bad financial advice since 2004 (there are hundreds of thousands of them) will have received a SOA. If the SOA was meant to improve the quality of advice that is being provided, it has failed.
In fact, the SOA has achieved the exact opposite of what it was intended to do. In particular:
- it is an expensive process to produce advice – this is why most advice is produced by organisations that subsidise the cost of producing advice by selling product to clients (Banks do not make any money providing advice – they make money when product is sold to clients). The result being that it is difficult to obtain truly independent advice and the cost of this advice is prohibitive – the default position being that most advice is provided by advisers who are little more than a distribution channel for product;
- garbage advice is garbage advice whether it is set out in a document or given orally – what the SOA does is allow advisers to protect themselves from the consequences of bad advice by putting pages of disclaimers and qualifications in a SOA – when something goes wrong, the SOA is used as weapon against the client;
- rather than avoiding conflicts of interest, the SOA gives the adviser the opportunity to set out conflicts of interest in the apparent belief that somehow telling clients about gross conflicts of interest (in a document that they know the client will not read and/or understand) makes it OK that the adviser is hopelessly conflicted; and
- clients very rarely read SOAs and many simply do not have the skills to understand what is being said to them. What clients want and what they rely upon is the oral advice that their adviser gives to them as to what they should or should not do and they rightly expect that this advice will reflect all of the risks that might eventuate if the advice is implemented. Instead, they get unqualified oral advice that they should take a particular course of action (which is what they wanted and are happy to pay for) which is then qualified by statements made in a SOA (particularly as to risks and sometimes statements are made that are quite different to what was said orally in the knowledge that the client is very unlikely to read the SOA).