How to write a shorter SoA: The Power of Pruning!

 

One of the general fundamentals of gardening, is that to nurture a plant, and maximise its beauty and proliferation for future seasons, is the need to skilfully prune the plant, removing the dead branches of the past season, and the wilted petals which once flowered.

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)[1] which 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’[3] to your recommendations, you must disclose any remuneration or other benefits you, or related persons[4] are to receive that might be reasonably expected to have influenced the advice you have provided. Information must be disclosed in dollar amounts.[5]

In addition, any relationships which ‘might reasonably be expected or be capable of influencing’[6] 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’[7] 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.[8]

This is where the shears come 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 TTR’s. 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 state in RG 90.34(b).[9]

Where disclaimers and legal information are required, consider whether the information can be more effectively included as part of other disclosure document 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 re-potted 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 standalone, 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 SoA’s 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 SoA’s. Don’t fear the gardening shear 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 amongst the weeds.

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Author: Clarisse Berenger, Lawyer

This article was first published in the Opinion piece of the Independent Financial Adviser (IFA): How to write a shorter SoA: The Power of Pruning

[1] Specifically, Corporations Act 2001 (Cth) Chapter 7, Subdivision D covers the provisions relating to the mandatory contents of an SoA.

[2] Regulatory Guide 175 Licensing: Financial product advisers-Conduct and disclosure (ASIC, November 2017).

[3] In a financial planning dispute, AFCA looks to see a client provided their informed consent, see AFCA’s publication “The AFCA Approach to adequacy of statements of advice”.

[4] Corporations Act 2001 (Cth) s947B(2)(d), s947C(2)(e).

[5] Corporations Act 2001 (Cth) s947B(2)(h), s947C(2)(i).

[6] Corporations Act 2001 (Cth) S947B(2)(e), S947C(2)(f).

[7] Corporations Act 2001 (Cth) s961H(1).

[8] Corporations Act 2001 (Cth) S947B(6), S947C(6).

[9] Regulatory Guide 90 Example Statement of Advice: Scaled advice for a new client (ASIC, December 2017).