10 easy steps to draft ‘clear, concise and effective’ Statements of Advice

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Zoe Higgins Senior Associate Linkedin

Financial advisers are required to provide Statements of Advice (SOAs) that are “clear, concise and effective”. But what does this actually mean in practice? We share some tips and identify some common mistakes based on our reviews of hundreds, if not thousands, of SOAs.

1. Consider the SOA’s primary purpose

SOAs are usually drafted with compliance obligations in mind. A financial adviser’s compliance obligations are, of course, very important. However, an SOA is not simply a compliance tool. An SOA’s primary purpose is to provide your client with enough information for them to make an informed decision about whether to act on your advice. An SOA should be drafted with this primary purpose in mind. Templates are valuable documents and certainly have a role to play in the advice process. However, it’s important that you don’t rely too heavily on a template. We can’t stress this enough; we regularly see SOAs that are heavily templated and have not been tailored to suit either the advice or the client.

2. Consider your audience

Remember that your audience is not your compliance team; it is the client that has engaged you to provide advice. Consider what investment experience your client has? What are your client’s literacy and numeracy skills like? Is your client likely to understand technical terms and industry jargon or will your client require more detailed explanation? Taking the time to consider your audience will help you to tailor the language you use to suit your client and prepare an SOA that your client is more likely to understand.

3. Determine the scope of the advice

Having considered your audience, the next step is to think carefully about the scope of the advice. What exactly has the client asked you to do? Has the client limited the advice in any way? Our view is that determining the scope of the advice is a crucial first step in the financial advice process. It is no coincidence that following receipt of the initial information from the client, the next safe harbour step requires the adviser to identify the subject matter (the scope) of the advice.

4. Clearly set out the scope

Once you’ve identified the scope of the advice, you must then ensure that this scope is clearly set out in the SOA. This is critical, as it will form the basis of the entire SOA. When setting out the scope in your SOA, use the client’s own words and don’t rely on template wording. Be careful not to confuse the scope with the client’s goals and objectives or with your advice. We frequently review SOAs that set out the scope of the advice in very general terms and fail to reflect the task that has been agreed upon with the client.

5. Set out the client’s goals and objectives

The next step is to set out the client’s goals and objectives early in the SOA. Again, use the client’s own words and don’t rely too heavily on template wording. We have seen many SOAs that set out a client’s goals and objectives in language that a client would be very unlikely to use. The client’s goals and objectives should also be, where possible, specific and measurable. For example, “your goal is to retire at age 65 with an after-tax income of $60,000”. If care is taken when setting out the client’s goals and objectives in the SOA, this simplifies the advice process as you can then ensure that your recommendations are linked back to the client’s goals and objectives.