Moves to shorten statements of advice are good news for consumers, writes Kristen Paech.
The new, shortened statement of advice (SoA) published by the Financial Planning Association of Australia (FPA) recently is good news for consumers, who often receive lengthy and complex documents that prove difficult to digest. Independent consumer research conducted by Susan Bell Research on behalf of the FPA in May this year showed consumers prefer shorter SoAs, not only because they’re easier and less time consuming to read, but also because they have more faith in their ability to understand the contents.
Participants considered the ideal length of an SoA to be 15 to 20 pages.
“Many readers simply skip big chunks of longer SoAs because they assume that most of the document will be generic,” says Jo-Anne Bloch, chief executive officer of the FPA.
According to the research summary report, the example SoA was written in plain English and comprised mainly personalised information which discouraged readers from skipping sections of the document.
By skipping sections of the SoA that they believe to be generic, consumers are “potentially missing essential pieces of information”, the report notes.
“Consumers may also read a longer SoA over several days, making it difficult to keep the whole strategy in mind, whereas the example SoA ‘is easier to keep in your head’.”
The Australian Securities and Investments Commission (ASIC) has thrown its weight behind the FPA’s short-form SoA, with deputy chairman Jeremy Cooper praising it as “a major step forward in the ongoing challenge to shorten and refine documents to make them more user-friendly”.
“This is a very positive step in getting planners to understand the old adage that ‘less is more’. A short and simple document that talks to clients in their language is much smarter than technical jargon and legal mumbo-jumbo,” he says.
Cooper says ASIC often sees SoAs that are 40 to 50 pages long and some even longer.
“Some advisers think that a long document is required by law – they couldn’t be more wrong,” he says.
“The law says that statements of advice have to be clear, concise, and effective. Long statements of advice are a headache for everybody; they are neither necessary nor useful.”
However there is a risk in making SoAs too concise. The Susan Bell research found the shortened SoA road-tested with consumers was too dense in the first part of the strategy discussion, where several ideas were introduced close together.
“Restructuring it into a series of steps which reflect the process that the consumer will go through will make this section easier to use,” the summary report notes.
Consumers also became distracted by references to fees within the strategy section. The research suggests all fees should be referred to in one table later in the document, differentiating between what the consumer pays and what the adviser receives.
Bloch says the FPA used the results of the research to refine its short-form SoA, which is now available for members to use. But the FPA is not the only industry body attempting to simplify financial advice disclosure. Earlier this year, the Investment and Financial Services Association (IFSA) commissioned the Wallis Group to conduct research on the effectiveness, language and design of product disclosure statements (PDSs). The aim was to identify which information was crucial to an investor’s superannuation decision, and to explore how PDSs could be shortened.
The research built on a project which commenced in mid-2007, looking at how consumers use their super documents.
“Last year’s research told us that people want shorter documents, but are understandably sceptical about what less information might mean to them in terms of risk,” says John O’Shaughnessy, deputy chief executive officer of IFSA.
“The length of the industry’s product disclosure statements has confused investors and worse, has led to some investors overlooking important information – such as the ability to choose an investment option.”
The latest research, which included focus groups and one-on-one interviews, revealed investors preferred PDSs that were 15 to 20 pages long, and included an easy-to-read contents page, a corporate statement, contact details and key features at a glance. Information considered essential by the focus groups include a simple fee structure; a succinct, easy-to-understand statement about the investment options; past performance; and a checklist for the reader to tick boxes as they work through the process.
“This research will form the basis of IFSA’s Guidance Note for IFSA’s members, which is aimed at producing shorter and more comprehensive disclosure documents,” O’Shaughnessy says.
