Most clients don’t read Statements of Advice (SOA) because they are far too long. This renders them ineffective and exposes advisers to the risk that their client may not understand the advice they’ve been given. If things go wrong down the track it may even leave advisers on the hook if the SOA is not clear, concise or effective.
The clear, concise and effective obligation in the Corporations Act 2001 applies to both words and presentation. So how you present your SOA is just as important as its content. Information should be presented as briefly as possible without compromising its accuracy or leaving any essential information out.
Here are our top three tips to a clear, concise and effective SOA that is easier for clients to read:
- Remove jargon
Legal, industry and technical jargon make any document difficult to understand, especially to clients who are inexperienced or unfamiliar with financial terms. Avoid acronyms such as TTR, ETF, LPT and words that clients may not understand like wrap, concessional or non-concessional contributions, defensive or passive assets. While these may sound impressive, clients may not understand them.
If you must use industry jargon then include an explanation that is written in simple language that the client will understand and relates to their specific circumstances.
- Stick to the essentials
More information is not always better. An SOA will not be compliant if it contains irrelevant information. So this is not the time or place to include marketing spiels, educational information or research materials.
The SOA must only include information relevant to the client – anything else may distract them from the critical information. For example, if you are advising a single person about their superannuation contributions do not include information about spouse contributions. If you think your client would benefit from more generic information about their contributions perhaps refer them to another resource like ASIC’s MoneySmart website.
- Templates need to be tailored
Beware of templates that promise to prepare an SOA for you with minimal client information. While templates can be efficient they should give you enough flexibility to tailor the SOA to the client’s unique circumstances and the advice you are providing.
Some generic SOAs we have seen contain so much irrelevant information that it takes more time to cull the document than it would to create a tailored SOA from scratch. A seven-page document about their situation is also more appealing to the client than 40 pages of irrelevant information.
Templates can still be very useful with some enhancements. For starters, include instructions and guidance on how to use the template to prepare a tailored SOA. Also specify what content is mandatory, what is optional and what requires tailoring to produce a meaningful document. Your client will thank you for it.
SOAs for superannuation advice specifically
Superannuation SOAs tend to have more jargon than others. This is because there are so many acronyms in relation to superannuation and tax treatments which are very familiar to the industry but not necessarily to the client reading the SOA.
We also find that superannuation advice with respect to SMSFs isn’t always delivered to the correct person. The client is the person being advised i.e. if the advice is in respect of whether to establish an SMSF, or whether an existing SMSF remains suitable, then the SOA should be to the person who will become a member if the SMSF is established. If the advice is to an SMSF member about making contributions to their SMSF, then the client will be the super fund member. Sometimes this is the same person, but not always.
By Sónia Cruz, head of licensing, The Fold Legal
Good article Sonia. I also think that advisers and paraplanners need to get back to the basics of what a SoA needs to depict. 1. Where is the client now; 2. What are you recommending; 3. Why are you recommending it; 4. How will it help the client. If advice was kept simple like this, the client would find it easier to read and understand.