Dover’s advisers know how seriously Dover takes its SOA review process. 100% compliance is a must, with a particular emphasis on the advice being in the client’s best interests and appropriate to the client, and an assumption that the client is conservative unless the client says otherwise and a reasonable financial planner would agree.

Dover does not get paid by anyone other than its advisers. This means Dover is free from the strong product bias and conflicts of interest faced by most other AFSLs.

Dover’s advisers can be real advisers, genuinely putting their client’s interests first and only recommending products and strategies which are in their best interests. 

Dover lets you run your practice the way you want to run your practice. Dover helps you do this by providing unmatched support for your statements of advice. Dover believes the style, format and content of your statements of advice is a critical part of your practice, and that you must be able to produce competent and compliant advices that are suited to your clients promptly and efficiently.

MLA Lawyers reviews every SOA

MLA Lawyers, a registered legal practitioner, reviews every SOA prepared by Dover advisers and certifies that they are appropriate to the client and in the client’s best interests. This is a critical feature of our service to advisers: it means they can be sure that their SOAs are compliant and in particular are in the client’s best interests and appropriate to the client. 

MLA Lawyers stands behind every Dover SOA. Dover is the only AFSL that does this, and its part of Dover’s commitment to having the best compliance processes of any AFSL in Australia. This extra review adds gravitas and respect to our adviser’s SOAs and means they are more likely to be accepted as the client’s long term trusted adviser. 

Dover classifies SOAs into two categories: simple and complex.  A complex SOA is one which:

involves more than $500,000 of investment monies; involves debt; classifies the client as not being conservative, moderately conservative or balanced, or recommends a financial product that is not regarded as conservative; involves more than 40% international shares; or, in the case of risk insurance products, involves disposing of a risk insurance product which is less than two years old or has total premiums of more than $10,000 per annum.

Simple SOAs are all other SOAs. All SOAs are reviewed by MLA Lawyers, but for obvious reasons complex SOAs receive more attention from our compliance team.

Risk analysis questionnaires

Risk analysis questionnaires are discouraged, almost banned.

Instead, Dover requires a discussion about your client’s attitude to risk and preparedness to accept the possibility of short-term losses. 

The client is assumed to be conservative unless they say otherwise, and a hypothetical “reasonable financial planner” would agree. You must set out your reasons for classifying the client as conservative or otherwise, having regard to the client’s facts, including age, health, wealth, expected inheritances, income (height, stability, insurability and expected longevity) education, training occupation and previous investment experience.

Dover’s preferred SOA format

Dover provides a large number of precedent SOAs. These are in the resources section of www.dover.com.au. Advisers are encouraged to use these precedents, adapted as appropriate to the circumstances of the client. It’s not mandatory to use these precedents (although it is mandatory to include certain disclosures dealing with Dover’s obligations to the client and the client’s obligation to Dover). But it is strongly encouraged.

What is a statement of advice, or “SOA”?

From an adviser’s point of view, a statement of advice or SOA is a written explanation of the adviser’s advice to a client. It explains and records the advice, the reasons for the advice and how the advice is to be implemented. It also provides various statutory disclosures designed to protect the client and to make sure the advice is reasonable and suited to the client’s circumstances.

Regulatory Guideline 175 emphasizes the client’s point of view and the importance of the SOA as a communication tool, and says: “A SOA is a document that helps a retail client understand, and decide, whether to rely on personal advice.”

A SOA normally comes at stage four of the classical six stage financial planning process, and comprises an integral part of the process. The six stages comprise:

  • the collection of client data
  • the determination of the client’s objectives;
  • the identification of financial issues;
  • the preparation of the client’s SOA;
  • the implementation of the SOA’s recommendations; and
  • an on-going review of the plan for the client.

What does a good SOA look like?

ASIC says SOAs must set out in a clear, concise and effective manner:

  • the advice, and the reasoning that led to the advice;
  • information about remuneration and benefits
  • all conflicts of interest that may affect the advice and
  • the costs, loss of benefits and other significant consequences when recommending switching between financial products.

Advisers will have different opinions as to what a good SOA looks like. Dover has prepared a series of template sample SOAs and these are available in the resources section of www.dover.com.au. We encourage you to base your SOAs on these templates, but you do not have to do this (although there are some mandatory provisions such as Dover’s Consumer Protection Policy and similar materials.

Your SOA should have an individual flavor and should reflect your personal preferences and practice style. Your SOA must comply with certain Corporations Act requirements and should comply with certain conventions, but its primary role is to explain your advice to your client. If it does do this, it is an effective SOA. The Corporations Act compliance is necessary, but all the compliance in the world will not make a bad SOA into a good SOA.

It’s a mistake to over-emphasizes compliance issues, to the point that the SOA looks like it has been prepared by an over-anxious solicitor paralyzed by the risk of litigation, rather than a skilled and experienced financial planner, with sound technical skills, confident of his/her advice and its appropriateness to his/her client’s circumstances. The SOA should be first and foremost an effective client communication. An effective SOA helps present a professional image and minimizes the risk of a complaint due to client misunderstandings or a failure to disclose information required under the Corporations Law. There is a trend to shorter and more concise SOAs.

The SOA should be first and foremost an effective client communication. An effective SOA helps present a professional image and minimizes the risk of a complaint due to client misunderstandings or a failure to disclose information required under the Corporations Law. There is a trend to shorter and more concise SOAs.

More is not better, and is probably worse, with your message and meaning lost in a barrage of disclaimers, unnecessary explanations and irrelevant appendices. Effective brevity enhances a SOA as a communication tool, and improves the impression your SOA makes on your client’s perception of you and your advice.

Your SOA should be tuned to your client’s financial sophistication, literacy and level of wealth. What is appropriate for one client may not be relevant to another. An expansive explanation backed by detailed research and numerous learned articles may fit the bill for a recently retired engineer, who is obsessed with investment detail and loves researching how to invest his $3,000,000 self-managed super fund. But it will be lost on a time short young father of three who only wants quick advice on his industry super fund life insurance options. Your writing style should be concise and precise, and your English plain.

Some simple rules to assist you in drafting your SOA in an effective manner:

Font

You should:

  • ensure that the font style, colour and size are consistent throughout the SOA;
  • use an easy-to-read font such as Times New Roman or Calibri in 12 point for all text;
  • use bold, capitalization and italic consistently.

For example: 

  • Rather than: Your Old Fund is Name. We recommend you to rollover the funds from MLC into the new fund Name for life. Within the New fund…
  • Use: Your existing fund is Name (“The Old Fund”). We recommend you to rollover the Old Fund into Name (“The New Fund”). Within the New Fund…

Plain English

An effective adviser makes complicated matters sound simple, not simple matters sound complicated. Michele M Asprey in her excellent book “Plain Language for Lawyers” summarizes the issues well by writing.

To change our way does not involve going back to kindergarten and writing in words of one syllable. We will still be able to show our skill. In fact, we show our skill more keenly and more sharply when we write in plain words. The frills, the frippery, the bells and the whistles are stripped away and what remains is pure and clear. No misunderstandings. Just the facts. A professional document that is accessible by its users. One that shows our skills and focuses its readers on the issues, rather than the periphery of unnecessary detail and unfamiliar style.

You should:

  • make the advice as simple, concise and consistent. It should be easily understood by a lay person;
  • aim to explain, not impress. The good impression will automatically follow the good explanation;
  • use first person pronouns wherever possible;
  • consider the client’s financial literacy and use language that explains your advice in the simplest form which is appropriate for the individual client;
  • avoid using industry or legal jargon, and do not use technical terms unless absolutely necessary and provide definitions as appropriate;
  • avoid using double negatives. For example: “not unconvinced” or “not ill-advised
  • not put conditions, qualifications and modifications into one sentence. It is better to use a series of short sentences to convey this information.

For example:

  • Rather than:
    “Cash investments will not be subject to volatility and enjoy the benefit of a government guarantee but keep in mind as it is not a growth investment it could quickly lose value as a result of inflation.”
  • Use:
    “Cash investments are generally not volatile and benefit from an effective government guarantee. However, keep in mind that it is not a growth investment. It could lose value due to inflation.”

Format

You should:

  • use short words and short sentences wherever possible;
  • ensure that the SOA reads as one document and should not have parts that have been cut and pasted from different documents;
  • refrain from including general information or diagrams and tables which are irrelevant, these can be included in the appendix for the client to refer to if required;
  • avoid leaving pages blank;
  • avoid empty headings that may be irrelevant or incomplete;
  • avoid exceeding 10 pages for limited scope SOA;
  • use only one space between words and after all punctuation, including full stops;
  • have only one line between paragraphs, and avoid excessive spaces
  • make effective use of executive summaries and checklists;
  • set out a follow up mechanism, i.e. what happens next;

Paragraphs and sentences

You should:

  • avoid long paragraphs and sentences;
  • keep sentences short to ensure that your text does not look dense on the page and is easy for the reader to follow;
  • make sure there is no more than one thought per paragraph.

Headings

You should:

  • use headings to signpost the way;
  • use no more than three level headings.
    For example:

    • Heading level 1 (Bold, 14pt) 
    • Heading level 2 (Bold, 12pt)
    • Heading level 3 (Italics, 12pt)

Nature of Advice

You should:

  • not include irrelevant information and should only include information that is relevant to the advice, ASIC’s mandatory disclosures and Dover’s mandatory disclaimers.

For example:

  • Cash flow advice is not required to be included in a SOA as it is not a financial product. You can discuss cash flow and budgeting with your client without including this advice in your SOA. However, you may still include the cash flow analysis in the appendix if required.
  • Projections of returns expected for different investments strategies can be appended and referred to in the SOA.
  • General information about a class of product should be included in the appendix or incorporated into the SOA by reference, i.e. using a hypertext link.
  • ensure that you are only giving advice that you are authorized to give and according to Dover’s guidelines.

For example:

  • If you have stated that your advice will reduce the client’s tax liability and you are not a registered tax agent, you should include a disclaimer advising the client to seek taxation advice from a tax agent or accountant to confirm the taxation implications of your recommendations.

Referencing / Appendices

You should:

  • not reinvent the wheel. If there is a good explanation in a textbook or on the internet, copy it, or even link it, into your SOA, with any appropriate qualifications and citations;
  • include endnotes (documentary notes) for all external materials you have made reference to in your SOA;
  • use clear cross referencing to avoid unnecessary repetition;
  • use appendices carefully, so that only secondary information is removed to appendices and not critical content. Key information should not be shown in appendices.

Grammar

You should:

  • use language consistently, particularly important defined terms;
  • always proof read your SOAs to ensure there are no spelling or/and grammatical errors;
  • a rule of thumb is to read a sentence, if the meaning is not perfectly clear on the face of it, then it is probably grammatically incorrect;
  • avoid using an inactive or passive speech.
    For example:

    • Rather than:
      This would indicate that …
    • Use:
      This indicates that…

Tables

You should:

  • ensure that your table is easily understood and in the simplest possible way of relaying the information;
  • aim for a consistent style between and within tables;
  • always double check the figures provided in the table (i.e. commissions and costs tables).

SOA compliance requirements

Part 7.7 of the Corporations Act controls the form and content of SOAs by imposing a number of conduct and disclosure obligations on advisers. These aim at ensuring clients receive professional and reliable advice about financial products and that minimum disclosure and content requirements are met. Penalties apply if these requirements are not met, and the adviser may be liable for damages for a breach of these rules. 

Section 946A requires a financial planner to provide a client with a written SOA at the time the advice is provided. Section 961B requires a financial planner to act in the client’s best interests when providing his or her advice and requires a determination of the client’s “relevant personal circumstances”, which includes their financial objectives and needs.

Section 947C sets out the information to be included in a SOA:

  1. a statement setting out the advice
  2. the data on which the advice is based (normally a “fact finder” or similar document)
  3. the name and contact details of the financial planner and the AFSL holder
  4. the financial planner’s authorized representative number
  5. the AFSL’s number
  6. information about remuneration including commission
  7. information about any other benefits that may influence the advice
  8. information about any associations that may influence the advice
  9. any other charges, costs or lost benefits connected to the advice, particularly the disposal or acquisition of a financial product and
  10. any other statements or information required by the regulations.

ASIC provides guidance on preparing a SOA in Regulatory Guideline 175.

Personal advice or general advice?

You do not need a SOA for general advice, only personal advice. Section A of RG 175 explains that personal advice is: “Financial product advice given or directed to a person (including by electronic means) in circumstances where:

  1. the provider of the advice has considered one or more of the client’s objectives, financial situation and needs or
  2. a reasonable person might expect the provider of the advice to have considered one or more of those matters.

General advice is all other financial product advice. That is, “general advice” is defined by an exclusion, i.e. it’s “advice” that is not “personal advice” as defined. The Corporations Law exempts general advice from the SOA requirements.  However, advisers should still take care with general advice because:

  1. the reference to “a reasonable person” in section A of RG 175 introduces an objective test and creates a situation where a financial planner may have provided personal advice even when they have not considered the client’s specific financial circumstances, including their objectives or needs, and may have thought only general advice had been provided and
  2. section 949A(2) requires advisers to warn clients that the advice does not take into account the client’s relevant personal circumstances when providing general advice. This warning should be in writing.

How do you know if you provide personal advice and a SOA is needed?

In some cases, it will be extremely obvious that personal advice has been provided. If a client makes an appointment, comes and sees you in your office, completes a fact finder, signs a financial services guide, considers your thoughts and suggestions, and then asks you to implement your recommendations then you have provided personal advice. A SOA is needed.

In other cases, the situation is not so clear. For example, a wealthy friend may have received a SOA from you some years earlier, but have not consulted you since. You know she receives regular advice from another firm of financial planners. At dinner with other friends she asks whether you are advising clients to change their super from “high growth” to “capital stable”. You answer her question as best you can, with some reference to her circumstances, and then observe that most of your clients are changing to “capital stable”. Your other dinner friends heard the conversation. Have you provided personal advice? Is a SOA needed? Are you liable if something goes wrong? The answer is not clear. You may think you haven’t provided personal advice. But you may have. This is because it may be that a reasonable person, for example, one of your other dinner friends, may have thought your choice of words, your general tone and demeanor, your client/adviser history and the strength of your conclusion was such that you were providing personal advice. If your other dinner friends are of the same view, and your former client changes her super from high growth to capital stable, and loses money as a result, then you may have a serious problem.

Advisers encounter these situations on an almost daily basis. Questions to ask to help decide whether your advice is personal advice include:

  1. what was your intention?
  2. what was “the client’s” expectation?
  3. was there a previous client relationship that included personal advice?
  4. did the client specifically ask you for personal advice or did they ask for “your general thoughts”?
  5. will you be paid for your advice?
  6. was the advice provided one to one, in a small group or in a public forum?
  7. did you warn that these were just your general thoughts and did not consider anyone’s specific circumstances?

Suitability of advice 

The advice in a SOA must suit the client’s circumstances. This rule was introduced by CLERP 6 to help address the lack of client sophistication, particularly for clients with low sophistication where disclosure on its own does not provide enough safeguards. (“CLERP” stands for “Corporate Law Economic Reform Program”, and CLERP 6 is part of the government’s on-going law reform process.)

The suitability rule is logically connected to the requirement that the adviser must consider the client’s personal circumstances and must have a reasonable basis for the advice.

Advisers should take a cautious and conservative approach to this rule. The suitability rule means that a SOA should not recommend higher risk financial products including products involving direct or indirect gearing where clients:

  1. are not financially sophisticated, by occupation, education or social background
  2. have only an average or below average level of wealth
  3. have only an average or below average level of income
  4. are older, and have less chance of recovering any capital losses in a reasonable time
  5. risk analysis shows only average or low risk adversity and
  6. have not specifically asked for such financial products (although a client asking for a specific financial product does not prove suitability: sometimes a good adviser has to say “no”).

When should a SOA be prepared?

RG 175.145 says that a SOA must be provided at the same time or as soon as possible after the advice is provided, which is presumably the client meeting or other connection. Section 946C(1) says the SOA must be provided to the client before any financial service is provided, such as arranging for a financial product to be recommended to the client. Section 946C(3) has an exception in “time critical” cases for a financial service to be provided before a SOA is provided. These circumstances are limited to where:

  • the client has specifically instructed that the financial service be provided immediately or before a stated time and
  • it was not reasonably practical to provide the SOA before that time.

Here the SOA must be provided as soon as possible and in any event within five days after the financial service being provided. You should not make this exception your rule. It’s not an excuse for not preparing a SOA on time. The two conditions are very limiting and it will be a very unusual set of facts where they can be relied on with any certainty.

Corporations Law reference

Requirement

Section 947A

The title “Statement of Advice” must be shown on the front cover or near the front page

Sections 947B(2), 947C(2)(c) 947C(2)d and 912F

The name, contact details and licence number of the person providing the advice and the relevant AFSL holder, and a statement that the adviser is an authorized representative of the AFSL holder

Sections 947B(2)(a) and 947C(2)(a)

The SOA must include a statement setting out the advice

Sections 947B(2)(b) and 947(C)(2)(b)

The SOA must provide information explaining the basis on which the advice is provided, including as much detail as is reasonably required for the client to make a decision whether to act on the advice. The information should be clear and unambiguous, easy to read and understand, and include:

  • a summary of the client’s relevant personal circumstances;
  • the scope of advice;
  • the subject matter of the advice;
  • a generic description of the range of financial products or strategies recommended; and
  • a concise statement of how the advice provider has acted in the client’s best interests and why the advice and recommendation were considered appropriate

Sections 947B(2)(d) and 947C(2)(e)

Information about the remuneration, commissions and other benefits expected to be paid or which otherwise may influence the advice (or reasonably could be expected to influence the advice). This includes all payments such as commissions, trailer commissions, soft dollar commissions, time based fees and “back office” subsidies

Sections 947B(2)(d) and 947C(2)(e)

Information about any referral fees or similar payments to third parties such as accountants or mortgage brokers

Section 947B(2)(e) and 947C(2)(f)

Details of any relationships that may influence the advice (example: the ownership of shares in the entity providing the financial products)

Sections 947(B)(2)(f) and 947C(2)(g)

If section 961H requires a warning to be given to the client, the warning must be included in the SOA

Section 947D

If a product replacement or “switch” is recommended statements that:

  • the existing product has been considered;
  • the cost of the switch has been measured and considered;
  • potential lost benefits have been considered; and
  • details of any other significant consequences

Sections 947B(2)(g) and 947C(2)(h)

Any other statements or information required by the regulations

Sections 947B(3) and 947C(3)

These sections prescribe a level of detail that a person would reasonably require for the purpose of making a decision about whether to act on the advice

Sections 947B(6) and 947C(6)

These sections require SOAs to be worded and presented in a clear, concise and effective method

Switching

“Switching” is jargon for a recommendation to replace one product with another. Pre-FOFA, it was common for SOAs to recommend one product be replaced by another due to commissions. Commissions on investment products have gone and inappropriate switches are less common these days. RG 175.155 sets out additional disclosure for switching

It says that the SOA must state that the old product has been considered and should set out:

  1. the costs of disposing the old product and acquiring the new product
  2. the loss of access to rights (example insurance) including future rights
  3. entry fees on the new product
  4. any benefits that may be lost and
  5. any other significant consequences.

Additional rules for super switches

Information Sheet 182 Super switching advice: Complying with your obligations (INFO 182) purports to set out additional disclosure rules for super switches. However, on a closer reading it really just repeats the content of RG 175.155. ASIC has published two information sheets dealing with disclosure of information to clients about SMSFs. These are information sheet INFO 205 “Advice on self-managed super funds: disclosure of risks” and information sheet INFO 206 “Advice on self-managed super funds: disclosure of costs”. Dover deals with these additional disclosure requirements for SMSFs by linking these two additional information sheets into the SOA and deeming them to be part of the SOA. This is the only practical way of providing the copious information set out in these information sheets.

Further ASIC guidance on SOA content

ASIC has released extensive regulatory guidelines providing financial planners with further guidance on SOA content and what it regards as good practice. Regulatory Guides 168 and 175 are expansive and will re-pay your close reading.  

Some observations include:

  1. incorporation by reference. A SOA may in effect indirectly include another document if there is a clear reference to it and the other document is available from the adviser at no charge. This incorporation by reference rule allows Internet hypertext links and similar devices to efficiently improve the information content and format of a SOA
  2. extraneous (non-mandatory) material. Such material, e.g. research reports, should be clearly labeled and distinguished from the mandatory material and should not be included in the SOA as such but can be provided separately
  3. clear, concise and effectivemeans be as brief as possible without compromising accuracy
  4. highlight important information, particularly where the SOA is long, say more than ten pages
  5. the longer the SOAthe greater the need for navigational aids such as table of contents, executive summaries and so on
  6. no compendious documents.SOAs cannot be combined with other documents such as financial services guides and product disclosure statements (section 947E)
  7. dates and time limits.SOAs should be dated and any time limit on the applicability of the advice stated
  8. presentation is important.ASIC believes presentation is as important as content as far as client comprehension is concerned and
  9. avoid generic formats.SOAs should be tailored to the client and should not include generic research or irrelevant information.

Disclaimers

Disclaimers are a useful way of limiting potential liability for the SOA. Section 961H effectively requires a disclaimer if for any reason a financial planner believes the information on which the SOA is based is incomplete or inaccurate. Disclaimers may relate to the class of persons who may rely on the advice, the time frame in which the advice remains current, the future investment performance of specific assets, the performance of the economy or specific sections of the economy, taxation issues, or future interest rates. Disclaimers should appear in the body of the SOA and should not be hidden in an appendix. Disclaimers are limited at law and, for example, cannot override a statutory obligation such as the disclosure of remuneration.

Statements of Additional Advice and Records of Advice

A Record of Advice (“ROA”) may be used as an alternative to a SOAA. Section 946B describes where a SOA is not required. It allows a ROA to be used where:

  1. a SOA has been prepared within 12 months
  2. the client’s relevant personal circumstances have not significantly changed
  3. the basis of the advice has not significantly changed
  4. the client requires prompt advice or
  5. it is in the client’s interest further advice be provided promptly.

For example, if a client rings and asks whether she should pay an extra $20,000 cash into a CMT you recommended in a SOA six months earlier, there is no need for a new SOA, and a ROA can be used to document your advice. However, if your client then asks whether she should borrow $100,000 to buy some USA shares, and the earlier SOA did not discuss this strategy, a new SOA is needed.

Is your advice limited to an approved product list?

Most AFSL holders only allow advice on products on their approved product list (APL). Your SOA should clearly state this, and offer to provide a copy of the APL if the client wishes to view it.

Conflict of interest

Your SOA should clearly disclose any apparent or perceived conflict of interest connected to your recommendations.

An authority to proceed

The Corporations Act does not require a SOA to include an “authority to proceed” form, authorizing the adviser to implement the recommendations on behalf of the client. However, it is an industry convention and good practice to include such a document, at least as a sample, as an appendix to the SOA. Each model SOA shown below includes and “authority to proceed” form.

What your SOA does not cover

Your SOA should clearly describe any relevant or potentially relevant matters that are not discussed in it. Examples of matters not discussed may include:

  1. taxation advice (and if appropriate recommend a source of taxation advice)
  2. super advice (and, if appropriate, recommend a source of advice)
  3. general insurance (and if appropriate recommend a source of advice) and
  4. how to invest or otherwise deal with future cash flows on recommended investments.

Educational and research materials

It is good practice to provide educational and research materials to clients, or at least those clients who have expressed an interest in receiving such materials. These materials should be clearly marked as additional materials, and included by way of an appendix, a hypertext link, or a separate document, and not form part of the core SOA. The provision of generic educational and research materials does not replace the need for competent and complete advice, and full disclosure of all relevant matters under the Corporations Act.

Additional pointers suggested by FOS: “Top 10 tips for avoiding advice-related disputes”

On Wednesday 9 September 2015 SMSF Advisers published an article by Alison Maynard from the Financial Ombudsman Service setting out tips to financial planes to help them avoid advice related disputes. You can read the article here: FOS article on SOAs September 2015.

In summary, she said:

  1. take detailed file notes at the time you provide the advice
  2. set out the client’s goals and your strategy using words the client can understand
  3. turn clients away when appropriate rather than provide inappropriate services
  4. if a client does not accept your advice, set this out very clearly in your SOA, make a file note and have the client sign it
  5. explain what type of service you are providing
  6. use template forms and documents carefully
  7. use risk profiling tools carefully
  8. don’t give cookie cutter advice
  9. understand and explain the products and
  10. be clear about the advice relationship with clients you know (eg friends and families).

It boils down to this: follow the process set out in RG 175 and similar documents, and always act in your client’s best interests and only provide advice that is appropriate to your client, and, we would add, is conservative, and you are unlikely to encounter problems.