Most SoAs can be cut in half

Tahn Sharpe

By

May 23, 2018

Financial planners are living in fear of non-compliance, a paraplanning technology expert says, which has resulted in statements of advice blowing out to twice their ideal length.

Terri Ho, general manager of advice at YTML, a privately owned, Sydney-based company that counts the big four, major dealer groups, corporations and smaller businesses among its clients, says the advice documents advisers show her are way too long.

“I think SoAs could be reduced by up to 50 per cent,” Ho says.

After seeing more than 50 SoA templates in the last three years, Ho reports that over 80 per cent exceeded 40 pages and one extended to 130 pages.

“I don’t believe in a one-page SoA, but it doesn’t need to be 30 pages, let alone 130,” she says. “I think a good length for a standard SOA is between 15 and 20 pages. If it involves more strategy around pensions, for example, that might extend it out another five or so pages, but anything above that is unnecessary.”

The problem, Ho explains, is an irrational fear of non-compliance.

“Advisers are totally, totally overcompensating,” she says. “It’s out of fear that if they don’t disclose enough, they’ll get caught out. But what they’re disclosing are insignificant things. Some of them are blatantly obvious, like explaining that if you hold insurance in your superannuation, the premiums will deplete your benefits.”

Ho also says SoAs are rife with superfluous technical information.

“Advisers often feel like they’ve got to disclose all this information about the technical side of what they’re doing. Then you end up with a 60-page SoA, which [clients are] not going to read,” she says.

Despite efforts by ASIC to encourage financial advisers to produce shorter, clearer and more concise client-facing documents, Ho believes advisers are erring too far on the safe side. If anything, she says, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has pushed “additional fear” onto advisers.

Often, she continues, advisers even create additional documents to summarise their own SoAs.

“Advisers are aware of what they need to disclose and need the client to understand, but they also know the client won’t understand a 60-page document. So they end up creating a ‘couple-page’ summary on their advice so that they can say, ‘Here are my disclosures, and here is what my advice is really about,’ ” she explains. “This just creates more work for them.”

Ho says the key to clearer, more concise documents is to trim the fat.

She suggests advisers focus more on scrutiny than basic client information.

“Don’t just regurgitate information they already know,” she says. “You’re age 50, you live here, you’re a non-smoker and you own this – they already know that. That section of the SoA should be an analysis of their current situation. Talk about the fact that they’re spending 60 per cent of their expenses on discretionary items.”

Advisers should speak less about platform and product, she says, and more about the reasoning behind their advice.

“I think the ‘why’ is the most important part of the SoA,” she says. “Advisers that don’t speak to that clearly tend to fall back on [speaking about] product features, online access, and the 500 investment options available. None of those things really speak to why we’re doing this.”

Visual representations of data are also preferable to “bodies and bodies of text”, Ho suggests. A transition-to-retirement pension, she says, is a perfect example of a strategy that is better explained with a picture than words.


TOPICS:   compliance,  paraplanning,  statements of advice,  strategy document template,  TECHNOLOGY

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