A Statement of Advice may not be what you think it is
Steve Wright gives his views on statements of advice as they related to life and health insurance.
Monday, April 15th 2024, 11:25AM 
8 Comments
by Steve Wright
I suspect we can all agree that, in simple terms, a Statement of Advice (SOA) is a record of advice given, recommendations made, and associated justifications. As with many things about life and health insurance advice, this simple explanation raises many questions, for example:
- What do you want to achieve with a SOA?
- How long should a SOA be?
- How detailed should it be?
- Will clients read it?
- When must it be given to clients?
What do you want to achieve with a SOA?
Do you see a SOA as essential to ‘closing the sale’? If you do, you are likely to want to keep it short and sweet. While I see the attraction of this approach, for me a SOA is much more important than simply a sales tool.
I see a SOA as important evidence accurately reflecting the advice you have given and the various recommendations made, with accompanying justifications.
In the case of initial life and health advice for a family, for example, a SOA may need lots of detail because that is what is necessary to ensure the client has enough information to make an informed decision.
Enough detail about all the critical aspects of advice is also a necessary step in evidencing the client has understood your advice.
I see a SOA as critical for protecting the adviser against complaints that the client “didn’t agree to this” or “didn’t want that” or “didn’t understand”.
How long should a SOA be?
It’s not surprising (considering my view that a SOA should be evidence of suitable advice given, client agreement on a variety of matters, and client understanding) that I think a SOA must be as long as it needs to be.
Advice on a comprehensive package of life and health insurance for a family, will likely require a long SOA. This is because there is a lot of advice, many recommendations, and many justifications, to evidence.
In other situations, where the recommendations are few, a SOA could be shorter.
How detailed must a SOA be?
If you want a SOA to protect you in the event of a complaint, then it should be clear and detailed enough so that a stranger can pick it up, maybe many years later, and see exactly what ‘went down’ and why.
The more ‘loose ends’ you can tie up, the less likely any complaint will be successful.
If you want the SOA to be short and sweet, then you will still need to evidence all the necessary detail somewhere else, unless of course you like living dangerously.
We know from previous cases that, in the absence of a written record, the client’s version of events is likely to be believed, simply because the adviser is less likely to remember one client’s detail among many.
Every adviser SOA I’ve reviewed (advisers I regard as very well skilled and astute enough to ask me to peer review their advice paperwork even though they believed theirs to be ‘compliant’) had omissions (easily fixed) that would allow a client to claim they didn’t understand, or agree to, an advice recommendation.
Such omissions would probably result in an unsatisfactory outcome for the FAP/adviser if a complaint was ever made.
Will the client read it?
A long SOA won’t be read by many, maybe most clients, but that’s no reason not to properly record your advice.
A solution may be an executive summary with detail following. However you do it, I think time spent taking the client through your SOA and confirming with them they understand everything (and recording that you’ve done this) will be time well spent.
When must a SOA be given to the client?
When giving initial advice to a new client, the ‘when’ will be obvious. The real question is about subsequent SOAs.
To my mind a SOA is not a one-time thing.
One thing I do know is that a Statement of Advice can be your best friend or your worst enemy when facing a complaint.
A SOA must be prepared each time you give advice or make a recommendation. If your client buys a house, has a baby, makes more money, you probably need a SOA. If your client wants to increase cover, you need a SOA (of some sort).
If your client wants to reduce cover, you especially need a SOA. If your client makes a claim, you may need a SOA. If your client has life or trauma buyback and has a claim, a SOA will be inevitable. Every instance where you give the client a recommendation or advice, whether they act on it of not (also something that needs recording) should be properly documented within a reasonable time, whether you call it a SOA or not.
You may be thinking I’m being overly ‘legalistic’. When you consider for a moment, just who will determine a complaint against you if one is made, maybe that’s justified.
One thing I do know is that a Statement of Advice can be your best friend or your worst enemy when facing a complaint.
Steve Wright has qualifications in economics, law, tax, and financial planning. He has spent the last 20 years in sales, product, and professional development roles with insurers. He is now independent and helping advisers mitigate advice risk through training and advice coaching.
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Comments from our readers
I've reviewed SoAs 'signed off' which lacked critical detail.
1. the FMA monitor reviewing the file
2, the FMA enforcements team'
3. the FADC if FMA takes a case
4 The EDRS considering any complaint.
5. Any external compliance auditor the FAP the advisor belongs to
Actual practice could be a bit like Humpty Dumpty and the meaning of words in Alice and wonderland.
I feel sorry in advance for anyone who gets caught up in that wringer!
I think the content requirement for a SoA is determined entirely on the individual circumstances of each case, the advice given, and any recommendations made.
Some deficiencies may be identified by FMA file reviews but unless the file reviewer is an expert in NZ life and health products and advice issues, many deficiencies are unlikely to be recognised and may only become apparent during some form of dispute, after expert input.
I’m just penning another opinion piece for Good Returns which will highlight the point I’m trying to make. A suitably detailed SoA will both educate the client (as required by Code Standard 4) and provide evidence that the adviser gave ‘compliant’ advice/service. A little time and effort getting a SoA suitably detailed could save a lot of pain later.
Client notes are important, ensuring a client understands is important but I really not able to completely protect myself against bureaucracy or folk who have never practiced telling us how to practice.
Imagine if a GP whose sole intent is to help and who is acting to benefit his patients had to do a fact find (written). Scope (written), needs analysis (written), a complete statement of advice on every prescription pointing out and emphasizing all the Contraindications of each medication and every alternative. Then give all those documents to their patient. Ask the patient to read and sign, point out the disclosures and how they can complain about them at least 3 times.
Clearly helping people improve their financial position is far more dangerous :).
Life advice and recommendations can differ in design, philosophy, preferred outcome and detail, and still be acceptable.
The issue I have, with SoA I’ve seen, is the lack of objectively important detail justifying the recommendation and evidencing matters necessary for the client to make a decision. Omitting this detail, which, for the most part, is reasonably easy to add, leaves an adviser very vulnerable if a complaint is ever made against them. My next opinion piece on GR will give an example of the kind of detail I’m talking about.
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Unfortunately, many FAP compliance people will expect a sledge hammer for every transaction, which creates more barriers than solutions.