‘Less is more’: Re-building the SOA

‘Less is more’: Re-building the SOA

 

Financial planners agree that in an ideal world, the Statement of Advice would be a concise document or email which focuses on what the recommendations are, how it will benefit the client, any foreseeable risks or disadvantages, and the associated fees and costs for the advice and products recommended.

Minister for Financial Services Stephen Jones expected to launch a consultation later this year on the regulatory framework of the SOA, after the Quality of Advice Review recommended abolishing compulsory distribution.

A&T Financial Services certified financial planner Anthony Poci says the written advice – which may take the format of a short document or email – should demonstrate to the client that the adviser has captured their needs, addressed it with a suitable recommendation and outlined any risk or disadvantages that may apply.

“The old adage of ‘less is more’ is certainly true in the Statement of Advice world, and having a clear and succinct one, two or even three-page document which the client can digest, is clearly going to be easier to understand than a long 40 or 50 plus page document full of jargon and generic text,” Poci tells Professional Planner.

Right now, compliance is weighing down the traditional SOA, making it less client-friendly, according to Wealth and Life Planning certified financial planner Helen Nan.

To enhance its effectiveness, she says the SOA should be concise and easy to understand, focusing on key strategies, product recommendations and future projections.

In essence, SOAs should strike a balance between compliance requirements and being client-centric, fostering a deeper understanding of one’s financial situation and prospects. This approach can encourage clients to proactively engage with their financial planning and instill hope for a more secure future, Nan says.

“SOAs should serve as tools to empower clients in understanding their financial standing, both current and future,” Nan says.

“Many clients approach financial advisers without prior knowledge of their net worth or post-expense income.”

She adds the documents should bridge this gap by presenting clear financial snapshots and future projections, to motivate clients to take action and envision their financial future, even though these projections are based on assumptions and variables.

Others agree that SOAs could be substantially shorter, simpler and more client focused rather than the present approach of including as much information as possible to avoid any potential legal liability.

“Lawyers and accountants can produce summarised documents for clients for example information memorandums for sophisticated investors, so as now highly qualified professionals we should be able to do the same,” Main Street Financial Solutions principal and private client adviser Charles Badenach says.

The SOA should include a summarised version of the key issues for the client including the objectives, risk profile, the recommended strategy, the underlying recommendations, the costs and payments to the adviser (and licensee), and importantly the future action points that the adviser will address over the next 12 months, Badenach says.

“What this would mean is that the client can then control as to how much or how little information they receive,” Badenach says, adding advice firms wouldn’t need to “re-invent the wheel” every time and create a 60-80 page document that the client does not value.

“From an advisers perspective, this would substantially reduce the cost of producing the SOA which would then make the advice process more accessible to more people.”

Joshua Dalton of Dalton Financial Partners agrees that the ideal SOA would be 20 pages or less.

“I’d like to see a greater use of links for more generic sections, such as explaining different insurance terminology and product features,” he says.

“My biggest hang up at the moment is having to restate the client’s overall position or ‘where you are now’ section every time we do an SOA. This section should only include what is relevant to the advice.”

Dalton adds that an adviser’s comprehensive knowledge of the client can be proven with other filed information, rendering the need to provide all details in every SOA unnecessary.

“For example: If the advice is just super, only the super balances and cash flow are relevant,” Dalton says. “We don’t need to know about the value of cars, loans and other investments.”

 

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