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The Ultimate Statement of Advice Checklist

October 11, 2020
The Ultimate Statement of Advice Checklist
Financial Planning

The Ultimate Statement of Advice (SoA) Checklist

The Regulator

ASIC have clearly itemised non-negotiables that must be displayed in an SoA which, as an advice professional, you will be familiar with.It must be dated, have a cover page and it must be clear who is providing the advice: Name, contact details, registered address, relationship to AFSL, who the AFSL is etc…

Know your client

We don’t have to show full details of the client’s financial position pre-advice. But it does make evidencing the ‘know  your client’ obligation much easier and efficient. All the data is loaded any way, and it helps the clients get a visual representation of the start i.e. their reference point on which to evaluate their advice journey. It also helps us to identify gaps in knowledge of our client’s situation that may impede the quality of our advice (queue‘Limited Information’ warning to client).

Scope your advice

In an industry where our almost-full buckets are continuously added to (at large expense), scaled advice has been a gift. Do you remember the ‘must give holistic advice all the time’ phase? Phew, common sense can prevail (sometimes) but let’s be clear; we need to clearly articulate what is in scope and what is out of scope (i.e. what we are advising on).

Speaking of buckets, this is how it was once described to me in one of those post-lunch compliance hot spots sessions at the annual PD Day.You might think, ‘Yawn’ but it was a light bulb moment for me. It is either in the ‘In’ or the ‘Out’ bucket; there is no spillage, there is nothing in-between. It’s in or its out. Oh, and if it is out, give a good reason for excluding it. It is hard to justify the exclusion of retirement advice for someone about to retire…hmmm think twice about that one.

Provide the advice the client wants

Clear, dare I say SMART goals, yes please! As a paraplanner, it brought me much joy (sad I know) when I received a fact find that had clear, measurable goals that I could relate the advice to and show with ease, how the advice met the goals of the client. Don’t get caught up in what a goal versus an objective is. Do get caught up in what your client wants and helping them articulate that in a goal that you can help them achieve! Never ever use a goal that says, ‘Review Super’ or ‘Review Insurance’. It’s hard to substantiate, right? That’s right.

Clearly articulate your advice

I keep a library of 120 different strategies but there are new ones each year and many require variation to match client circumstances.There are always four parts to writing the advice:

What the advice is and the flow of funds (where applicable). For example, “We recommend that you invest $100,000 into a portfolio of direct shares from your recent inheritance from Aunty Bell.”

Benefits of the advice. “You will gain access to capital growth and tax-effective dividend income.”

Consequences of the advice. “Your portfolio will bear higher risk that may result in volatility and negative returns.”

Alternatives advice strategies. “We considered investing into a managed fund that provides diversity across asset classes however we discounted this strategy as you have specifically requested direct share investments.”

Show how the recommended financial products benefit the client

Any recommendation for the client to invest in or buy a financial product, comes with it a set of disclosure requirements. And by disclosure I don’t mean just the Products Disclosure Statements, although obviously important. We need to highlight how the product helps the client achieve their goals. A good rule of thumb here is to demonstrate how it improves the outcome from their current product or position and even better, what could potentially happen if they don’t take up the product recommendation(opportunity cost) or they take up an alternative product option (mandatory product comparisons: tick!)

Demonstrate why the recommended asset allocation is appropriate

Ah the asset allocation...should it be strategic, tactical, fluid? One thing is for certain. We must profile our client’s tolerance and aversion to risk. It should be more than answering questions about risk. It should be past experience, aversion to products/asset types/companies. And the SoA should evidence it all including a comparison of the agreed profile to the recommended asset allocation. Talk about the portfolio construction in the SoA too; clients want to see your expertise in this area…and so do ASIC!

Discuss client goals, your advice and... outcomes!

I am always surprised to see Statement of Advice templates with no provision for a summary of the outcomes of the advice. No Better Position Statement or discussion of reasonable basis. Surely post Royal Commission we see this as mandatory?! But just as importantly, surely the client needs this to make their decision. We cannot give them product advice anymore without telling them why.Think of it like a two-year-old. But why Mummy, why? Why and how does the advice help them achieve their goals. Diagrams and flow charts are invaluable in explaining the advice and its benefits to clients also.

Clearly show how you and any third parties are compensated

Clients need to know what they are paying and everyone that is getting paid including the AFSL, Adviser, Referrer, Product Issuer, and theInvestment Manager. Recent clarification requires unbundling of fees for Funds and Platforms so that clear comparisons between products can be drawn. It makes sense that we distinguish between upfront and ongoing costs so the client can determine what is a one-off cost and what is ongoing. Make sure you are checking any product fees that come from software research. They can be incorrect, and I know from experience that Auditors don’t like ‘my computer did it as a defence. And don’t forget the transaction costs of implementing the advice!

Talk about how you'll help the client on an ongoing basis

If there is an ongoing relationship, if you are charging for ongoing services, this is often the first opportunity to address it with the client. It is also an opportunity to show value in your ongoing service.

Make sure you include all disclosures, warnings and considerations

If the advice is based on limited information, it makes sense that we explain to the client how this could impact the appropriateness of the advice. If you are providing tax advice on the strategies, they should know how far into their personal tax position this advice extends. If there are consequences including costs, to implementing the advice, the client must consider this before accepting the advice. Most disclaimers are logical when you think about the client and what they need to know. Make use of templates provided by AFSLs, Software companies and Content professionals as they will include all of the various components of disclosure and warnings in advice.

Tell the client what they need to do next

We all know that clients rarely read the SoA cover to cover and make their decisions based on the trusted relationship they have with theirAdviser. The ‘Next Steps’ section helps to bring the advice into the client’s reality. The practicalities of each step requiring an action makes it real and therefore a more informed decision on the advice. Avoid duplication and use it as a checklist for support staff to implement the advice!

Ensure the SoA is customised for the client

Templates are pointless if we are not going to customise them to our client’s circumstances and needs. Read that again. If there is a pet peeve of the ASIC Auditor, I would argue it is this. Reading ‘cookie cutter’ SoAs, the same document repeatedly from an Adviser spells trouble. No two clients are the same nor should their SoA be. Highlights for editing include their background, how the advice meets their personal goals, how the advice puts them in a better position, how the portfolio has been constructed to suit their wealth creation and cash flow needs and why one product suits them better than another.

Always disclose and conflicts of interest

You should have a list of any conflicting interests, associations, payments, receipts. This will be the same for every client. My tip here is that everyone writing your advice documents should have this list of the ‘insert here’ page explaining them. This way, there is no confusion and the client is always informed. Watch this space, FASEAs new code may change the landscape for how or if conflicts are tolerable in the future.

Include a call to action for the client

Don’t forget the ATP (Authority to Proceed)! We cannot implement the advice without the authority to do so. The ATP should confirm all the information the client has been given and an ‘acknowledgement’ from them that it has been read and understood – of course it has!

Kate Fellows is the founding director of The Professional Paraplanner.

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