The time is right – The whys and how’s of compliant video SOAs
The rapid uptake of video meeting apps since early 2020 has led to many advisers realising they can leverage this technology to deliver both efficiencies and an improved client experience in the context of the SOA.
Introduction
Disclosure, along with financial advice, financial literacy, and regulation, is one of the four key pillars of financial consumer protection. And in the context of financial advice, there is no more important disclosure vehicle than the much discussed, often derided, Statement of Advice (SOA).
One of the criticisms levelled at the SOA is that they are time consuming – and therefore costly – to produce, leading to higher fees and putting advice further out of reach for many consumers.
But perhaps the bigger failing of the SOA – or at least, the way many are choosing to implement ASICs guidance – is that they are failing to perform their intended role, which is enabling the client to fully understand the advice they have been given, the reasons for that advice, and its potential outcomes.
Although the scrapping of the SOA was one of many recommendations made by the Quality of Advice Review (QAR), comments by Assistant Treasurer Stephen Jones suggest this is unlikely[1]. (Many observers have also suggested some licensees would be keen to keep SOAs even if they were no longer mandated).
While at the time of writing the Government’s response to Levy’s QAR recommendations remain unknown, the likelihood remains strong that Statements of Advice – in some shape or form – will remain a key component in the advice disclosure regime.
To forward looking advisers, the question of whether SOAs are in or are out is less relevant than the question of how to best communicate advice to clients and how best to achieve the genuinely informed consent that lies at the heart of truly effective, valued advice.
Many such advisers have already decided that video-based disclosure and communication is the way to go, and the Video SOA has quickly become a major talking point within advice circles.
In this article, we will look at video SOAs from a theoretical, regulatory, and practical perspective, bringing together research and resources that can help advisers decide if this is a path they want – and have the capability – to take.
The problem with written SOAs as a communication tool
The shortcomings of over-reliance on disclosure as a consumer protection have long been recognised by policy makers. As far back as 2014, the final report of the Financial Systems Inquiry stated:
“Disclosure can be ineffective for a number of reasons, including consumer disengagement, complexity of documents and products, behavioural biases, misaligned interests and low financial literacy.”[2]
Arguably there is no clearer example of disclosure working against consumer interests than the SOA
Despite being the primary document that formally addresses a client’s most important dreams, goals, and concerns, and which includes recommendations and action plans for achieving those goals, the truth is SOAs are rarely read – let alone understood – by clients. Indeed, a recent industry panel discussion concluded that SOAs have become “big, alienating, and defensive documents that are more likely to increase the anxiety of consumers who are accessing advice for the first time”.[3]
In simple terms, many SOAs have prioritised legalese, and confuse length and jargon with transparency. They are too complex for clients to engage with. As a result, they are ineffective in creating truly informed consent. And, contrary to what some compliance teams may believe, they are leaving advisers exposed, rather than protected.
Many advisers were on to this long ago, choosing to make the SOA an appendix – rather than the centrepiece – of their advice communication. Advice strategy documents, which were shorter, used much simpler language and relied on more graphics, became quite popular.
The Video SOA is so hot right now
The latest advancement in this space has been the video SOA. Leveraging the increasing digitalisation of our lives, advocates of the video-based advice communication believe it is the way of the future, and can drive both efficiency and an improved consumer experience.
As hot topics go, the video SOA is sizzling.
The FPA (prior to its merger with the AFA) undertook an extensive advocacy campaign, releasing a comprehensive tool kit and holding a number of ‘how to’ webinars. ASIC weighed in and gave them a tick (sort of). And the acquisition of Enlightened Financial Solutions by Viridian Financial Group was reported to have been driven “as part of an expansion into the emerging video Statements of Advice segment[4].
What does ASIC say about video SOAs?
From ASIC’s perspective, video SOAs are an acceptable replacement for written versions provided they meet the meet the same compliance requirements as written ones, and provided clients can receive one in written format if they prefer.
Speaking at the 2022 FPA National Congress, ASIC executive leader Leah Sciacca, explained that the Corporation’s Act is “technology neutral” and did therefore not mandate format[5].
She went on to say, “from an ASIC perspective, we encourage industry to explore technology and innovation that might lead to efficiency and benefit consumers.”
A reminder of what those compliance requirements are
There is currently no ASIC Regulatory Guide specific to video SOAs. Rather, the requirements are those already applying to SOAs and digital advice generally, as articulated in RG 244 (Giving information, general advice, and scaled advice), RG 221 (Facilitating digital financial services disclosures), and RG 175 (Licensing: Financial product advisers—Conduct and disclosure).
The foundational guidance around the information that MUST be contained in an SOA is RG 175. In simple terms this information includes (but is not limited to):
- The title Statement of Advice’ ‘at or near the front of the document’.
- Name and contact details of the entity providing advice, and the details of the authorising licensee if applicable.
- The actual advice itself.
- Information about the basis in which the advice was given:
- the subject of the assistance sought by the client
- the scope of the advice
- a summary of the client’s circumstances
- the products and strategies investigated as part of the advice
- the reasons why the advice is considered appropriate, and how the adviser has acted in the client’s best interests
- the advantages, disadvantages and risks associated with the advice.
- Information about switching products if recommended, including the fees and risks.
- Remuneration and any benefits received by the adviser.
- Details of any interests or relationships that could potentially influence that advice.
- A warning if the advice was produced with incomplete information.
Importantly, ASIC also requires that the information be:
“Worded and presented in a clear, concise and effective manner”. 175.185
What is NOT mandated by ASIC
Equally importantly, the format and length of the SOA, and the inclusion of charts, graphs, projections etc is NOT mandated by ASIC[6]. Nor is the need to for a client to sign the SOA as an ‘authority to proceed’.
To the extent that charts and projections can help clients understand the advice been given, this means advisers can choose to provide these in a document/format separate to the SOA.
Special relief for digital disclosures
ASIC recognised the growing use of digital channels as far back as 2012 and issued RG 221 specifically to provide extra guidance and relief around those requirements of RG 175 that were clearly skewed towards text-based documents (for example, referencing ‘at or near the front of the document’).
ASIC sets out its aims for RG 221 as including:
- explain how under the Corporations Act most disclosures can be delivered digitally
- describe the relief available under the ASIC Corporations (Removing Barriers to Electronic Disclosure) Instrument 2015/649 to remove potential barriers to more innovative disclosure; and
- set out a ‘good practice guidance’ on digital disclosure.
This Good Practice Guidance requires:
- Disclosure documents should be easy to retrieve, view and understand.
- Disclosures should not distract or divert clients from relevant information.
- Clients should be able to identify the disclosure.
- Providers should use their reasonable efforts to ensure that the client or their agent receives a copy of the disclosure.
- Clients should be able to keep a copy so that they can access the disclosure in the future.
- Clients should be able to prove which version of the disclosure they relied on.
- Clients should be able to opt out of digital disclosure.
- Disclosure documents should be delivered in a way that does not unreasonably expose clients to security risks (e.g., phishing or identity theft).
None of which precludes video SOAs.
The scientific support for video SOAs
There is an extensive body of research that shows education is more effective when delivered through sight and sound, rather than through static text.
The human brain processes pictures and sounds far quicker than words, and retains that information longer too.
One study found that when you pair images with information, “people retain 65% of that information three days later as opposed to just 10% with text alone.” Another study by Insivia found that “viewers retain 95% of a message when they watch it in a video, versus 10% via text.”[7]
So why did it take so long to get here?
Whilst some advisers have been using video SOAs for as long as 5 years[8], take up is nowhere near mainstream. Which begs the question as to why the penny is just starting to drop on video SOAs. There are several possible explanations:
- The improved quality of mobile devices and laptops has made it easier than ever to produce video with good resolution and sound without needing expensive equipment
- The withdrawal of the large institutions from advice has heralded a more commercial and consumer centric perspective among licensees (some, at least!)
- The widespread embracing of video-based communication by clients, and the growing usability of video meeting apps, which COVID-19 accelerated.
FPA’s practical toolkit for Video SOAs
In July 2022, to capitalise on growing adviser interest, The FPA released its ‘State of Advice Project (SOAP) Box Set, a a series of 14 videos designed to equip advisers with the required tools to provide an SOA via video format[9].
The SOAP Box Set – available exclusively to FPA members via their portal – covers a range of topics, demonstrating the ease with which advisers can create a video of their advice meeting which can be provided as an SOA, as well as real-life examples of video SOAs covering various scenarios such as pre-retirement planning and life risk advice.
The project followed an extensive consultation process between the FPA and members, consumers, regulators, lawyers, compliance experts, and technology providers. The shared goal of that project being a paperless SOA that reduced compliance costs and increased efficiency, while also delivering advice that clients can better understand.
According to the FPA’s then Head of Policy, Ben Marshan, two of the key principles behind the project were that advisers should be able to adopt SOAs using existing technology, and that the use Video SOAs was not reliant on legislative change[10]. In other words, there were no cost or regulatory barriers.
‘It’s not about taking an 80-page written SOA then standing in front of a camera and delivering it. In simple terms it’s about recording the client meeting in which you deliver the advice.
Case Study – how one adviser converted his practice to video SOAs in 4 weeks[11]
Financial Adviser and CEO of self-licensed Verse Wealth, Corey Wastle, knew inherently that paper based SOAs impeded, rather than added to, the client experience. He first heard about Video SOAs when listening to an FPA podcast one weekend. He was so inspired that he immediately spent a couple of hours whiteboarding the possibilities. After speaking to his team, and seeking the advice of their external compliance consultant, he knew that he wanted to take his practice down that path, and mapped out a change process with a challenging 4-week deadline to make it happen. With the help of his team, it happened.
In a nutshell, the video SOA is a recording of the meeting in which the advice is delivered. This makes it more watertight from a compliance perspective because there is irrefutable evidence of what the adviser – and the client – said. The recording works in conjunction with a written document – the Summary of Advice – which is focused on the actual strategy recommendations, leaving the mandatory disclosures to be handled during the meeting.
Whether that meeting is done over Zoom, or in person, Zoom is used as the recording platform. Wastle has configured his team’s laptops to make recording automatic. For in person meetings, the adviser briefly turns the webcam around and shows the people in the room, and gives a brief verbal introduction. A large part of that meeting effectively shows the screens that the adviser is typically sharing with the client. The mandatory disclosures required by ASIC could be done at the start or end of the meeting, and could be done via a shared screen or simply verbalised.
At the end of the meeting, the recording is saved to the CRM. The adviser also undertakes a quick ‘Professional Judgement’ survey to capture whether they detected any red flags or issues for follow up, and these also get saved to the CRM.
To make the meetings smoother, a Summary of Advice Document – a more client friendly document which is generally no more than 20 pages – is sent to the client in advance along with other information. The client is sent a link to a DropBox folder created for them, which is where the file of the meeting recording (Video SOA) will also be stored.
The efficiency and client experience improvements have been significant.
The meetings themselves have been cut from 90 minutes to 60. The Summary of Advice Documents has shrunk from around 15000 words to 3500 words and takes 2.5 hours to produce rather than the 8.5 hours it took to produce an 80-page compliance focused document. As a result, the paraplanning support needs have also shrunk from 1 to 3.
The recording of the meeting replaces the need to do file notes, which saves the adviser time and cognitive energy.
A common question from advisers is about the need for a written Authority to Proceed.
Wastle points out that there is no legal requirement for this to be in writing. For most clients, their verbal authority – the informed consent – is recorded on video when the adviser asks them. For those clients who prefer to think it over, they are sent a one-page Authority form via Docusign, with an automated reminder every three days. The average time taken provide these written authorities has also dropped dramatically, helping maintain momentum and improving the client experience.
In conclusion
The communications effectiveness of video is beyond dispute, and with the rapid uptake of video meeting apps since early 2020, the time seems ideal for advisers to leverage this technology to deliver both efficiencies and an improved client experience. Those advisers who take the time to understand ASIC’s guidance around the content and format for SOAs – and who approach the entire advice communication process with a client centric lens – will understand that a process incorporating video SOAs can not only be more effective at achieving truly informed consent from the client, but it can also be more robust from a legal and compliance perspective. All that is needed is to discard the legacy thinking and be open to what is actually possible.
Importantly, with the Government suggesting that some sort of SOA – perhaps with a different name and in a shorter form – is still likely to be required as part of their response to the QAR recommendations, any steps towards building a video SOA capability are likely to remain just as relevant and beneficial in the future as they are now.
