Creating clear, concise and effective SOAs

There has been a fair amount of tension around the length of Statements of Advice (SOAs) and ASIC has provided a lot of guidance on the requirements for the document, including the requirement for clear, concise and effective disclosure.

What is the SOA all about?

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But let’s step back a bit to think about the purpose of an SOA. We suggest it’s about:

• putting the client in a position to make a clear, informed decision;
• illustrating a reasonable basis for the advice you give;
• meeting the safe harbour provisions of the Best Interests Duty; and
• doing so in a clear, concise and effective manner

If there is anything else in an SOA, we believe it is probably padding.

We must give the client an easily understandable document that not only outlines the advice, but is a document that they would reasonably read – if it is not easy to read, it’s likely to fail the Reasonable Person test in a court of law.

SOAs have to outline what was discussed at the client meeting and what conclusion was reached. To paraphrase Frank Smith from Adviser Compliance Solutions, “The SOA is not the advice, it is a record of the advice itself. The advice is actually given when you are talking to the client.”

During client meetings, advisers should not only be getting to know their client and investigating their situation and needs, they should also be brainstorming and therefore canvassing different alternatives so that when they finally deliver their advice and recommendations, they are genuinely tailored to the client’s needs.

It’s also important to remember that an SOA is a Statement of Advice. It is not a statement of investigations nor is it a statement of choices. The client is paying for advice so when I see SOAs that print comparisons out of software schedules, my first question is, ‘What advice is the client paying for?’ Because if all they are getting is comparisons, then they’re not getting advice.

We’ve often been asked whether we should give the client perhaps three choices and our answer is always no – because the client is paying for advice. Have the strength of your convictions and give advice.

A bottom-up approach to SOA creation

Synchron happens to have one of the shortest SOAs in the industry – it sits at five pages, maybe six. We can do this because we take a bottom-up rather than a top-down approach to SOA creation.

We believe that when they’re developing and designing compliance documents like SOAs, the first priority of some licensees is to protect themselves. We call this top-down compliance, where the lawyers, accountants and compliance experts are brought in and documentation is put together. Using this approach, SOAs become documents that no client would reasonably read – it’s a compliance document first and an advice document second.

At Synchron we have a four-step process to SOA creation which has been in place since 2002. In creating an SOA, our advisers have to answer the following questions:

• Why did the client come to see you?
• What are you going to do about it? (What’s your strategy?)
• How are you going to do it? (Products, services to meet strategy, etc.)
• Having done that, how does it relate back to why they initially came to see you?

If the adviser can answer all these questions they can give themselves a big, green tick; if they can’t, then it’s a big, black cross and they need to start all over again.

That’s bottom-up compliance, starting with the client first by putting in place documentation they can read and understand and that is centric to them. If advisers follow this process they will end up with shorter, but more meaningful SOAs that have clients at the centre of the process.