Why advice documentation is the new front line of compliance
The aftermath of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services industry, the delivery of financial advice remains under intense scrutiny. While much attention has focused on the quality of financial advice itself, analysis by Oceanic Consulting Group (OCG) has casted light on a deeper issue: the persistently poor documentation.
Oceanic Consulting Group’s experience is telling. We have reviewed over one million advice files, providing a view into the state of Australia’s financial advice landscape. Our findings are consistent: across all populations – where compliance or risk hasn’t already intervened – about 7 out of 10 files are sound.
The remaining 3 out of 10 contain issues, ranging in severity, but enough to trigger compliance concerns. This statistic is both reassuring and concerning. While the majority of advice is sound, a significant minority is problematic – not because of the advice itself, but because of how it is documented.
The biggest issue we found isn’t poor advice – it’s poor documentation. The advice might be reasonable, but the documentation doesn't support it. The documentation is poor. It doesn't tell the story.
The core problem
Contrary to popular perception, most issues identified by our analysis do not stem from poor adviser education, bad intent, or flawed strategies. Advisers often assume intent is obvious – but unless it’s clearly documented, it's legally invisible.
The result is detrimental for financial advice. Advice that could have been suitable for the client is rendered indefensible. This situation can see robust strategies lost in overly long Statements of Advice (SOAs), unclear file notes, and missing links between client goals and recommendations.
Drilling down into the 30% problematic files, we found that roughly 70% of this group (or 21% of all files) involve poor alignment between the fact find and the advice provided, without any documentation of how and why the recommendation shifted. This misalignment is a compliance flashpoint and a top cause of complaints to the Australian Financial Complaints Authority (AFCA).
You’ve got to be able to see the chain from the fact find, to the goals, to the strategy, to the advice. If that’s not in the file, then we’ve got a problem. A well-written Statement of Advice is meaningless if it doesn’t connect to what the client said they wanted. File reviews consistently reveal disconnects between the fact find, strategy, and final recommendations – especially in risk profiling and rollover advice.
The cost of poor documentation
The consequences of poor documentation can be big. According to the most recent data compiled by the Australian Securities and Investments Commission (ASIC), remediation attributable to non-compliant advice totaled $260 million. However, this figure is dwarfed by the $3.3 billion paid out in remediation for fee-for-no-service issues.
According to executives who oversaw the remediation process, the enormous cost was driven by the absence of adequate documentary evidence. The major banks found their exposure was owed more to bad administrative processes and the absence of paperwork than to the delivery of bad financial advice.
With that in mind, it was deemed by banks more cost-effective to settle matters by offering clients a remediation payment than to undertake a comprehensive file search.
Improving for the better
To improve matters, the financial services sector must prioritise documentation as a core component of advice delivery. This includes drafting clear documentation standards, offering ongoing training for advisers, and rolling-out a scalable, technology-driven file review processes to ensure consistency and spot systemic issues early on.
One issue many compliance teams face is being stretched, or not having the expertise to lift the remediation process to the next level. This is where consultancies like OCG add real value. At OCG, we embed scalable file review systems, lift quality assurance capability, and give licensees visibility they can’t get from quarterly spot checks or templated audits.
OCG’s File Review as a Service (FRaaS) offering delivers targeted reviews while ensuring that clients meet both internal standards and regulatory requirements.
As the financial services industry undergoes regulatory changes in the near future, robust remediation policies will become more important. Delivering advice in the client’s best interest requires a team effort: a good strategy, governance, documentation, and defensibility. It’s much more than a tick the box’ exercise.
