The same can be said of an SoA, in that for the user (your client) to maximise its use, an SoA too needs to be trimmed down to ensure any unnecessary foliage detracting from its purpose is pruned away, leaving only a perfectly manicured document for your user to understand and appreciate.
It is too often the case however, that advisers are simply handing their clients an overgrown bunch of shrubbery, strewn in with a few weeds and thorns, rather than presenting a well-crafted bouquet customised to their client’s needs.
What follows are some practical tips to help you with your SoA pruning, all of which hopefully assist with guiding you as to what you can completely remove, what you should consider trimming down, and what non-negotiables you must include as part of any SoA.
Let’s start with the non-negotiables!
Before we sharpen those garden shears, let’s firstly identify the mandatory branches of any SoA that must never be removed. These are regulatory requirements under chapter 7 of the Corporations Act 2001 (Cth) that ASIC’s RG 175 2 provides guidance.
Who is giving the advice?
Firstly, and most obviously, the title “Statement of Advice” must appear on the cover or the front of the document, and any subsequent mentions can be abbreviated to “SoA”.
If you are self-licenced, include your AFSL number, and if you are an authorised representative of a licensee, include that information also, in addition to whom you are licenced by. Your contact details must also be provided.
What is your advice and its basis?
A statement setting your advice then proceeds, as does the basis for which you provide that advice. This is the main trunk of the SoA, where an explanation of what you are recommending and why you are recommending it, serves the client’s best interests and objectives.
Advice broadly covers strategic and product advice, and where effective to do so, the SoA trunk can branch off to cover the strategic and product advice separately.
Consequences of the advice – product replacement
If your advice requires replacement of a product (including partial product replacements such as where an investment is partially redeemed), it is a requirement that a separate disclosure to this effect, be included. Consider this as a mandatory need to “graft” a branch onto the SoA trunk. The product replacement information needs to contain the applicable charges, loss of any benefits and other consequences of doing so.
Disclosures of conflicts
For a client to make an “informed consent” to your recommendations, you must disclose any remuneration or other benefits you, or related persons are to receive that might be reasonably expected to have influenced the advice you have provided. Information must be disclosed in dollar amounts.
In addition, any relationships which “might reasonably be expected or be capable of influencing” the advice you have provided must also be disclosed.
Warnings
The other legal requirement, and specific mention of a warning required, is that which relates to advice given, when based on incomplete or inaccurate information. This warning must be made when it is “reasonably apparent” that incomplete or inaccurate information is provided by the client in relation to their objectives, financial situation or needs.
The final thing to note about the regulatory requirements of an SoA, is that if you are providing your advice in written form, it must be done so clearly, concisely, and effectively. This is where the shears comes in handy!
Removing the weeds
Template customisation
Early in my SoA writing days, it was ingrained in me that the statement of advice template is the holy scripture of the licensee, where any modification or removal of its text would need to be justified, more so than the recommendations contained in the document itself. The product of this mentality was a 100-plus page syllabus, with enough generic content to write a financial planning course with.
The lack of customisation resulted in Mrs Reynolds, a 90-year-old debt and dependent-free widower, with templated income protection text as part of her SoA; and Adam, a single, 31-year-old professional with a section of his SoA dedicated to TTRs. Granted that much of this information was appended to the back of the SoA for “educational purposes”, it nonetheless added nothing in assisting Mrs Reynolds or Adam to decide whether the advice was right for them.
While it seems obvious to remove irrelevant paragraphs and sections of an SoA template, this is not always the case. No one likes to hack at a good template, right? But don’t be afraid to use those shears and some good judgement, remembering that the SoA is to help your client make an informed decision about your recommendation, and not an educational or marketing tool. Still provide your client with that economic update or newsletter your office intern wrote but consider a separate communication instead of bundling it up and binding it as part of the SoA.
Are you overwatering?
Overuse of disclaimers
From working closely with advisers, I can appreciate that the climate post-Royal Commission into the Banking, Superannuation and Financial Services Sector, and watchful eyes of the regulator, that the use of disclaimers can be compared to a safety net beneath a circus performer’s tight rope, ready to rescue in the event of legal action. These safety net disclaimers come in all forms, whether they be to stipulate a non-guarantee of future returns, projections being based on estimates, outcomes being subject to regulatory changes, and the list goes on.
Despite their seeming comfort however, disclaimers should not be viewed as a trapeze artist’s trampoline, but much rather the overwatering indoor plants, which can lead to potential swamping and root rot. By no means do we suggest disclaimers be removed completely, but this is one area where you may wish to consider what purpose your SoA disclaimers serve, noting that the SoA is not “a mechanism to protect the providing entity against liability”, as ASIC stated in RG 90.34(b).
Where disclaimers and legal information are required, consider whether the information can be more effectively included as part of other disclosure documents such as the FSG, client service agreement or engagement letter.
Landscaping
Maintain tidy files and comprehensive file notes
The heading of this next section may seem irrelevant to the topic, but ensuring that you have up-to-date files means that much of the information that need not be required by law for inclusion in the SoA, can be to be repotted elsewhere. Just as I have observed advisers’ overuse of disclaimers in SoAs for security, the same can be said with the inclusion of client records such as advice checklists, product comparison analyses and other extraneous information which “evidence” that the adviser has done the right thing. Often the motivation may be to ensure, come licensee audit time, all the information is at the fingertips of the compliance officer to effortlessly tick off that all the necessary steps and research have been undertaken for each file audited. However, you need not worry that omitting the countless pages of life insurance product comparison tables will lead to question whether you have undertaken all the reasonable steps to meet your best duty obligations, as long as the information is stored elsewhere in your client’s file.
The same can be said with file notes and fact-finding checklists, which should be used to document your discussions with your client and need not appear as a chapter in the SoA. Although you should summarise the client’s relevant circumstances, your client does not want to read a biographical piece about themselves, so their life story need not be a part of the SoA.
Format well
Formatting can make a huge difference in the readability of a document and the desired impact of nicely tying together the SoA. The use of bullet points, easily digestible paragraph sizes and use of tables all add to the document’s effectiveness.
While there may be a need to repeat certain parts, especially if the SoA is written in such a way where the client can read certain sections as a stand-alone, any unnecessary repetition of content should be avoided. An example is when the SoA is written for a couple, both having the same “risk profile”. It is necessary to consider each separately and document any differences, but I have come across SoAs where the writer addresses both clients separately, but with the same content, resulting in a paragraph or so of duplicated risk profile information. Similarly, when you are relying on software to populate tables for replacement product information, rather than repeating the same table twice, you could consider merging the table by simply adding a separate column where the information differs between the client pair. Removing unnecessary rows rather than inserting “n/a” or “nil” are also small changes that can all add up to removing unnecessary pages in the SoA.
Bringing the bouquet together
Hopefully these tips have given you some ideas on how to shorten your SoAs. Don’t fear the gardening shears when it comes to pruning! Remember that the purpose of the SoA is to provide your client the information they need to decide whether your advice is right for them in a clear, concise, and effective way; and that your client can only provide you with their informed consent when your message isn’t lost among the weeds.
Clarisse Berenger, lawyer, Holley Nethercote
Good article but a few branches (steps) missing:
1. Evidence that the adviser is qualified to provide the advice in the SOA including registrations numbers ie TPB and FAR, probably on the front page might be useful. – Standard 10
2. A reference to the Terms of Engagement – Standard 4
3. The client’s relevant circumstances, needs and objectives (personal balance sheet, Inc & Exp) – s961B(2)
4. Evaluate the client’s current strategy or lack of one to meet point 3
5. Projections or modelling to prove that the client would be better off by adopting a another course of action or stay the same – Standard 5
6. Explanation that the fees, charges and benefits are fair, reasonable and value for money – Standard 7
7. Pricing the services required to implement the advice – Standard 7
8. Next steps after variations to the advice, if any – Standard 5
9, Ongoing Service required to check the advice is on track to meet the client’s relevant circumstances, needs and objectives – s962A
It takes 60 steps to provide one piece of advice in Australia without breaking the law!
20 years ago from my first days as an adviser (and long before it was popular) I always added an Executive Summary right up front in the Plan/SOA just after the contents page. I figured if you couldnt summarise your advice to the client in one page then you risked them not understanding the detail. I have lost count of the number of licensees who have bastardised this concept by insisting on adding their meaningless disclaimers at every turn (and page).
It’s fondly known as licensee best interest. This is one of the reasons the licensee system MUST go.
Having sat both sides of the licensing table and now self licensed, I can only say the licensee is trying to protect you (and them) from a dozen regulatory and oversight bodies and if you think getting rid of the “licensee system” will make life easier it won’t. It’s a lack of representation you should be seeking to change.
The article is spot on. The Corps Act is very clear about what needs to go in an SoA. When ASIC review a file, they look at it in its entirety. They look at the SoA, then look for the rest of the information/evidence in the file. By removing much of the ‘shrubbery’ from the SoA, it shifts the compliance/proof burden from the SoA to the overall file its self. Just because its not in the SoA doesn’t mean it doesn’t have to appear in the file.
Yeah, now tell it to my licensee who are only concerned about protecting themselves.
Your licensee has every right to protect themselves. If you are an AR operating your own separate business, they have limited scope to control and monitor you. Licensees have to overcompensate in areas like SoA structure to manage their risk. It’s a fundamental flaw of the licensing model. Until someone less senile than Hayne and more honest than Hume takes action to get rid of licensees altogether, the only way for advisers to avoid licensee compliance bloat is to become self licensed.
Excellent guidance. Since becoming self licensed I have been gradually implementing many of these principles. It is amazing how much clearer and simpler an SoA can become without sacrificing any important information or legal requirements.
However I never could have done it while under my previous licensees, who insisted on a rigid and voluminous approach. I suspect there will be a barrage of comments from ARs saying “you can’t do it that way because it’s not allowed”. Well folks, there’s a big difference between what licensees allow and what the law allows.
You’re correct except for AFCA, FASEA, ASIC etc..
Have you had this approved by ASIC?
A useful article; thanks.