How short SOAs can convert new clients?

[ October 24, 2012 ]

Imagine you are your client. You have just left what seemed to be a simple enough meeting with your financial planner. She said you were in good financial shape, but needed more life insurance, should roll your super into a better performing industry superannuation fund and should think about investing in a negatively geared residential property. “The tax breaks will be great,” she said.

All good stuff, and seemingly simple to explain and implement.

She said she has to put it in writing; sounds good. Couldn’t be more than a few pages, couldn’t take more than an hour or two and couldn’t cost that much. It’s just garden variety, financial common sense advice. She does it every day.

Imagine how your client feels when, two weeks later, your 50 page tome is delivered, including its two page index, three page executive summary, four pages of mandatory disclaimers and disclosures, three bulky appendices and lots of long words in long sentences in long paragraphs telling her things she really does not need to know. It’s obviously 95 per cent generic, and sounds nothing like you.

Deep down you know it’s nonsense. Your AFSL has a compliance team bigger than Ben Hur. They all pitched in to create a big model Statement of Advice (SOA) that only a big compliance team could create. And you have to use it no matter what your client wants, no matter what your client needs and no matter what your client can afford.

You are right. It is nonsense – and the exact opposite of what ASIC wants.

ASIC wants to see shorter SOAs. ASIC wants to want to see SOAs that use words your client can understand, do not include irrelevant material, and tell your story in your own words. Voluminous materials can be provided separately, perhaps via a hypertext link, and incorporated by reference. FSGs and PDSs can also be provided separately, again via a hypertext link, and incorporated by reference.

SOAs should be short and to the point, use simple language and, to use ASIC’s words in RG 175, be “clear, concise and effective”. Obviously plain English drafting principles apply.

The switching rules are important, and can be dealt with clearly, concisely and effectively by following the format set out in RG 175.164. This should include the simple sentence that you believe the new product will provide a better net return than the old product. It’s not hard, and takes less than half a page.

ASIC’s sample SOAs are as short as two pages, and ASIC is doing its best to bring these short sample SOAs to the profession’s attention. My own view is two pages is a little too short, but it shows where ASIC sits on this critical issue. Less than ten pages, and closer to five pages, is a sensible target for most SOAs.

Most financial planning advice is actually quite simple and straightforward. Why aren’t SOAs simple and straight forward? Why make a simple thing complex? Why not provide your client with something meaningful that they can make a decision on? And why not do it in less than two hours, and at a price your client can afford?

Don’t you want to keep your client?

SOAs and the seven Cs of plain English
Good SOAs can be summed up with the seven Cs of plain English. SOAs should be:

  • Concise
  • Coherent
  • Comprehensive
  • Consistent
  • Clear
  • Careful
  • Competent
The Dover Group