Adhering to a few simple rules will ensure that you create a clear, concise and effective statement of advice that clients will be able to read.
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, therefore 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:
1. 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, include an explanation that is written in simple language that the client will understand and relates to their specific circumstancess.
2. Stick to the essentials
More information is not always better. An SOA will not be compliant if it contains irrelevant information. 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, as 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.
3. 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.
Sonia Cruz is head of licensing at The Fold Legal