Do you price based on complexity?
Do you have a minimum fee regardless of complexity?
Do you reimburse the SOA fee when the prospect becomes a client?
There is no question that SOAs are crucial when advisers provide product advice.
They detail specific product recommendations, scope, approach, alternatives and objectives.
They also serve as compliance documents – both internally and externally.
From a compliance perspective, SOAs are built to satisfy a fractured Corporations Act that can’t differentiate between financial advice and financial products. While no advisory team in their right mind wants to risk their reputation challenging the ridiculous and patched-up Section Seven of the Act, they all abide by their current legal advice to over-document and toe the bureaucratic line and await reform.
Saying reform is nearing a snail’s pace is optimistic.
The government’s “no comments, no deadlines, but strong commitment” response this week to Michelle Levy’s 255-page Quality of Advice Review is more evidence that being perceived as doing something is politically easier than actually doing something. An unfortunate but common trait that dogged at least nine of the enquiries into financial services over the last twelve years.
While the financial health of every Australian is dogged by fundamental confusion between what is advice and what is a product transaction, thankfully, the majority of Australians concerned about their physical health do understand the differences between the health products (i.e. drugs) available and health advice (i.e. care).
Back to how much for an SOA.
I reckon SOAs are like a pilot’s detailed flight plan.
They are crucial for the people sitting in the cockpit flying the plane, dodging the weather, considering possible alternate paths, monitoring the traffic and their instruments, while regularly reporting on progress as they transport their passengers from one point in their lives to another.
But the airlines don’t sell or offer their detailed flight plans to their passengers for the simple fact they are of little value to them.
Thankfully flying passengers don’t have to kick the plane’s tyres or check the oil before take-off these days, whereas someone who seeks advice is expected to understand a detailed compliance document designed primarily to reduce the risk of the service provider.
Ironically this is the core problem Michelle Levy’s report attempts to resolve, as articulated on page 17 of her response – advice is too difficult to obtain and expensive.
So, being of little value to ordinary Australians, are SOAs not worth paying for?
SOAs may be worth paying for if the purchasing decision is just about getting a financial product.
But whenever the purchasing decision is less about treating a specific part of one’s financial life and more about treating the whole, another financial product could actually be part of a bigger problem rather than a cure.
So for Australians seeking a specific financial product, paying for an SOA might make sense.
But for Australians seeking their path to address their unique circumstances and to achieve their financial dreams, I don’t believe SOAs are worth very much to the purchaser and shouldn’t be paid for.
But the relationship with an adviser to determine the best steps around their issues to get closer to their objectives sounds valuable to me.
What do you reckon?
Photo credit: JJS_WhatPriceAdvice_BookGraphic
ABOUT JIM STACKPOOL
For over 30 years, Jim has influenced, coached, and consulted advisory firms across Australia. His consulting firm, Certainty Advice Group, coaches, trains and builds advisory firms delivering comprehensive, unconflicted advice with fees priced purely on value. He is growing a solid and collaborative community of advisory firms aligned on Australia’s only Certification Mark advice standard for comprehensive, unconflicted advice – Certainty Advice. He has authored four books regarding financial advice, with his latest – What Price Value – released in 2022.
Hi Jim, I’ve been giving personal advice close to 42 years now, and still like the idea that providing a document that is something that the client can refer back too is important rather than relying on the “it sounds like a good idea”. The best client that I have is the one that asks my opinion on every big money decision therefore no product involved.
So my preferred position is: still produce a ‘flight plan’ so both the client and any future adviser can check if they are on track but not the current SOA legal doc.
I also believe that even if the client is seeking a path to address their unique circumstances and to achieve their financial dreams, this still needs some upfront time spent and yes a document that plans that pathway, so call it whatever you want SOA or whatever, so it still needs a cost paid upfront so in my eyes they are not paying for an SOA product advice but they are paying for the knowledge of knowing the pathway.
Roland, agree that every sustainable advisory relationship needs to have a reference beyond “good ideas” – I recommend a Terms of Engagement document. A document that makes no specific product or service recommendation, but does re-state objectives, forward paths, priorities and progress. This could be a written document, a graphical Advice Path or combination. Obviously for product recommendations advisers need the ‘flight plan’ for advisers to check more so than clients who want a simply, more graphical (unless they love to dig deep into spreadsheets!). I don’t like ‘paying for the plan’ as the it is only a minor part of the relationship. It gives the wrong message too that the advice plan has value, which it does, but not without the adviser. Have a great 2023 Roland – looking forward to hear about your 43 year giving advice!