Financial advisers are required to provide Statements of Advice
(SOAs) that are "clear, concise and effective". But what
does this actually mean in practice? We share some tips and
identify some common mistakes based on our reviews of hundreds, if
not thousands, of SOAs.
1. Consider the SOA's primary purpose
SOAs are usually drafted with compliance obligations in mind. A
financial adviser's compliance obligations are, of course, very
important. However, an SOA is not simply a compliance tool. An
SOA's primary purpose is to provide your client with enough
information for them to make an informed decision about whether to
act on your advice. An SOA should be drafted with this primary
purpose in mind. Templates are valuable documents and certainly
have a role to play in the advice process. However, it's
important that you don't rely too heavily on a template. We
can't stress this enough; we regularly see SOAs that are
heavily templated and have not been tailored to suit either the
advice or the client.
2. Consider your audience
Remember that your audience is not your compliance team; it is
the client that has engaged you to provide advice. Consider what
investment experience your client has? What are your client's
literacy and numeracy skills like? Is your client likely to
understand technical terms and industry jargon or will your client
require more detailed explanation? Taking the time to consider your
audience will help you to tailor the language you use to suit your
client and prepare an SOA that your client is more likely to
3. Determine the scope of the advice
Having considered your audience, the next step is to think
carefully about the scope of the advice. What exactly has the
client asked you to do? Has the client limited the advice in any
way? Our view is that determining the scope of the advice is a
crucial first step in the financial advice process. It is no
coincidence that following receipt of the initial information from
the client, the next safe harbour step requires the adviser to
identify the subject matter (the scope) of the advice.
4. Clearly set out the scope
Once you've identified the scope of the advice, you must
then ensure that this scope is clearly set out in the SOA. This is
critical, as it will form the basis of the entire SOA. When setting
out the scope in your SOA, use the client's own words and
don't rely on template wording. Be careful not to confuse the
scope with the client's goals and objectives or with your
advice. We frequently review SOAs that set out the scope of the
advice in very general terms and fail to reflect the task that has
been agreed upon with the client.
5. Set out the client's goals and objectives
The next step is to set out the client's goals and
objectives early in the SOA. Again, use the client's own words
and don't rely too heavily on template wording. We have seen
many SOAs that set out a client's goals and objectives in
language that a client would be very unlikely to use. The
client's goals and objectives should also be, where possible,
specific and measurable. For example, "your goal is to retire
at age 65 with an after-tax income of $60,000". If care is
taken when setting out the client's goals and objectives in the
SOA, this simplifies the advice process as you can then ensure that
your recommendations are linked back to the client's goals and
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
This part will cover the legal position in relation to promotional materials and misleading and deceptive conduct.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).