A Statement of Advice may not be what you think it is

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Steve Wright gives his views on statements of advice as they related to life and health insurance.

Monday, April 15th 2024, 11:25AM 5 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.

Tags: SOA

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