By Hayley Knight
Hayley Knight recently struck a chord with her views on the length of SoA’s. Many advisers indicated that they agreed with the sentiment - but what can be done about it? With that in mind, while she still had access to “the soapbox” Hayley decided to write a follow-up piece on just that topic!
After sharing my opinion on the state of SoA’s, rather than just being a person who complains about it, I’m taking action.
From the responses I have received both privately and publicly, I think it’s safe to say that as a sweeping generalisation, Advisers are fed up. We know that a lot of SoA’s are not written with the client in mind and so I’m taking the first step in rectifying this.
We need to take a simple but effective approach and the best way I know how is via education. So, I spent some time firstly understanding the basics – what does the ASIC template actually involve? Surprisingly, it is quite simple.
The example (released May 2017) is a risk and super (contribution) SoA totalling 27 pages and the structure of this document is based on the following (apart from cover page and TOC):
- Summary of Advice
- Current situation (client data & goals)
- Recommendations (detail)
- Products
- Consequences & Risks
- Best Interest & Benefits
- Scope of Advice & Warnings (incomplete info, expiry date, cooling off, privacy)
- Implementation Steps
- Fees & Relationships
- Authority to Proceed
The structure above makes sense to me:
- How much do you know me and my situation?
- What is the advice?
- How did the Adviser come to this?
- What are the implications of proceeding (or not)?
This information is essentially all the client needs to know and ASIC have developed this structure based on behavioural studies.
ASIC have made it very clear that a SOA is not a compliance tool and the purpose should be to ensure the client makes an informed decision about the advice they are receiving. All of the other information (disclosures/disclaimers) should be left to legal documents such as the FSG and Letter of Engagement.
We don’t need to include points that have already been discussed or information on disclosures that have already been provided. For example, the FSG details the Adviser’s capacity to provide advice and the areas they are not able to advise on. This does not need to be redisclosed in the SOA provided that you have recorded the client already receiving the FSG.
They note “It is particularly important to ensure that SOAs are not too long or complicated as this detracts from the customers understanding”. Point and case regarding 50 page SOA’s.
My point is that if ASIC are giving us an example of what the SOA should look like, why is this being over complicated? It’s moving from being a client centric document to a compliance tool and it’s not good enough.
SOA’s are provided for the client to make an informed decision about the advice and when it’s cluttered with repeated disclosures and jargon, you can only expect confusion. I think the SoA from ASIC is a great starting point, sure, it needs some work, just like when you move into an old home and you make plans to renovate, but the bones are still good.
I’ve just started to scratch the surface on the possibilities for SOA’s. As with any change, it will take time, but my objective is to lead by example and simplify SOA’s so that they are easily and cost effectively produced to make financial advice a little more affordable for Aussies.
Hayley Knight is the Director of Contract Paraplanning Services (CPS). CPS was established in 2010 and is a contract para-planning service helping advisers around Australia. The views expressed in this article are her own.
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Comments6
"SOA is not a compliance tool however it has to be a compliant document to help clients making an informed decision. To do that, unfortunately lots of information needs to be included in the SOA which will result in a bulky document. The licensees and advisers fear of being sued if information is not disclosed due to the regulatory requirements imposed on them (e.g. FoFA, & Corporations Act etc). The stakes are just too high to shorten the SOAs. Prior to the Financial Services reform back in 2001, SOA was even not required in many occassions when advice was provided to clients. When an SOA was provided, it was generally quite short and simple. I am not saying we would like to go back to these days for the sake of simplifying SOAs. Unfortunately, the more regulatory requirements there are, the lengthier the SOAs are going to be..."
jane 15:57 on 20 Oct 17
"It's sad when 27 pages is the default "small version", whether the document is 27 or 50 pages it won't be read. Let's try to get it down to about 6 - 8 pages. An SOA is a document designed by the licensee's to protect themselves against legal action either in a court, FOS or via ASIC. They should not be as long as they are but if they are drafted to be a compliance or arse covering document then they will remain lengthy. Think about the possible ways an adviser can get sued or reasons ASIC can use to state an adviser provided inappropriate advice and you will realise why they are so long. "
Scott 20:47 on 19 Oct 17
"I've noticed it's the bigger Licencees who are mandating the bigger SOAs. Whilst I understand the compliance standpoint of protecting themselves, they're also doing themselves (and the clients) an injustice because of the fact they are making it difficult to make the advice process clear and concise. I shouldn't need to separately produce a simple document which says, "Now that we've gone through the Statement of Advice; this is what we're doing. In simple terms." Without doing this, I'm running the risk of presenting an overly complicated compliance document which the client doesn't sufficiently understand."
Grant 13:34 on 19 Oct 17
"I already have a SoA provided by my dealer group very similar to the new ASIC one. Why, one of the directors in our group is an ex commercial lawyer, hence we get internal legal advice, not paying outside lawyers who's (Conflict of) interest is to make money and produce large complex documents as they get paid more..... My Masters unit with Kaplan required a similar small SoA. If you read all the investment information in a PDS like Netwealth/Macquarie etc you will see most SoA's are doubling up. Also the Moneysmart investment handbook which i send to all new clients which i reference in the SoA is very useful given that this is completely independent to us and has the ASIC stamp of approval. Can't get a much better document to cover ones ass:) The problem is the dealer groups, software providers and the lawyers they engage..... but hey apparently only financial advisers have a conflict of interest:)"
Craig 13:17 on 19 Oct 17
"I've always considered a 2-part SOA to make sense. Part 1 contains all of the advice is an easy to digest format, part 2 contains all the waffle and disclosures."
Paul 16:11 on 18 Oct 17
"The lead must come from advisers to put pressure on the dealer groups to exclude all extraneous content. I'm not sure just shifting the disclosures and jargon to other documents is the answer, but at least you are "scratching at the surface of the itch"."
Andrew 16:06 on 18 Oct 17