How do I shorten my Statement of Advice (SOA)?

[Archived User]

Preparing a SOA takes time. It’s one of the reasons providing financial advice isn’t cheap. If you can provide shorter SOAs to your clients, you can cut the cost of doing business. An SOA is also an opportunity to showcase the value that you’ve provided to your client in providing your advice. The more succinct your SOA, the more likely your client is to understand it, perceive the value of your service, keep coming back to you, and recommend you to friends. As a firm, we’ve seen thousands of SOAs. When we compare notes, a recurring theme is that SOAs are far longer than they need to be. In fact, failure to provide short, clear SOAs can indicate breaches of the following obligations: That “statements and information included in the Statement of Advice must be worded and presented in a clear, concise and effective manner” – section 947B(6) of the Corporations Act 2001; and Financial services licensees must “do all things necessary to ensure that [the financial services they provide] are provided efficiently, honestly and fairly” – section 912A(1)(a) of the Corporations Act 2001. We think one of the reasons that SOAs are so long is that advisers (and their lawyers) take an unnecessarily broad interpretation of the legislative obligation to give “information about the basis on which the advice is or was given” (section 947B(1)(b) of the Corporations Act 2001). This obligation doesn’t mean a SOA needs to include all information about the basis of the advice. It may be appropriate to include this information for some clients, but in most cases it’s not. It’s an AFSL obligation to keep your workings on file (for at least seven years), but a simple explanation about why you’ve made a recommendation is usually enough. Some other tips are: Be careful about the scope, and stick to it. Only include information in the SOA that’s directly relevant to the scope of your advice; Take advantage of your ability to incorporate information by reference. Refer to details from your Financial Services Guide and relevant Product Disclosure Statements, and even cost structures set out in your initial terms of engagement with the client. If you must refer to educational material, refer to it within the SOA, and provide it as a separate resource; and Invest resources into refining your SOA templates to a bare-bones, legally solid skeleton. (Over time, a template can grow into an unwieldy beast that is no longer clear and concise.) The investment in refining the template will pay off with efficiencies in the medium- to long-term. The ASIC and Financial Planning Association (FPA) SOA examples are valuable resources which demonstrate how SOAs can be concise and effective (although they’re not perfect). Finally, the shortest SOA is the one you don’t need to prepare: Know when you can prepare a Record of Advice (ROA) rather than a SOA; Have a clear grasp of the exact definition of “personal financial product advice”. Knowing this doesn’t just make for good after-dinner conversation. It can mean the difference between preparing a SOA (or ROA) and providing a simple general advice warning.

(This Q&A also featured in the 19 May 2011 edition of Money Management)

For more information see our following articles: ‘10 easy steps to draft ‘clear, concise and effective’ Statements of Advice’ and ‘Part II of ’10 easy steps to draft ‘clear, concise and effective’ Statements of Advice’.

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