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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 12 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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Comments from our readers

On 23 April 2024 at 9:11 am JPHale said:
Well done Steve, yes, a SoA needs to be appropriate for the task at hand.

Unfortunately, many FAP compliance people will expect a sledge hammer for every transaction, which creates more barriers than solutions.
On 26 April 2024 at 12:26 pm Steve Wright said:
JP Hale: the real question for me is: do FAP compliance 'people' have the necessary detailed expertise in giving advice and about NZ products, to be able to comment on the substantive contents or omissions in a SoA?
I've reviewed SoAs 'signed off' which lacked critical detail.
On 26 April 2024 at 1:27 pm Steve Wright said:
Discussing SoA with an adviser - interesting! My view is that the content of a SoA is necessarily dependent on the client's product/s or the product/s the adviser is recommending. Yes, some detail may be relatively standard, but other detail will depend entirely on the product concerned, it's benefits, weaknesses, options and so on.
On 29 April 2024 at 8:30 am Murray Weatherston said:
At the end of the day won't the requirements for a particular SOA be determined by one or more of
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!
On 29 April 2024 at 10:43 am Steve Wright said:
Hi Murray
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.
On 30 April 2024 at 7:33 am Backstage said:
If I was paid to audit any of your files I would find at least 10 things I consider (with my subjective ruler) you are not doing correctly and must change and point out all the various dangers to the client if they do not understand. I get Murrays point.

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 :).

On 30 April 2024 at 5:12 pm Amused said:
Well said Backstage. Summed up perfectly.

On 2 May 2024 at 9:09 am Steve Wright said:
Backstage. I like your analogy with a GP, very amusing. I think it’s a mistake however, to think that criticism of a SoA is necessarily “subjective”.
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.
On 9 May 2024 at 7:02 pm 37 years too long said:
In the past, my insurance SOAs varied from 50 pages to 95 pages, trying to pin down every single aspect of a client's situation and to explain everything that could be conceived as relevant.

Despite this, I still found myself in front of the FADC when a client made a false complaint. Obviously, I continue to work in the industry, so the matter was resolved to my satisfaction. But that was only after 6 months of stress and an $80,000 PI claim.

Anyone who thinks that any document will save them from issues in the future is living in an idealistic world. The first piece of feedback I got from the FMA when they started investigating me was “how do you know your client understood this enormous SOA?”. For the FMA, the fact that something went wrong is all the evidence they needed that the client didn’t understand.

From that date forward I made the following changes to my business:

- All appointments are online recorded Zoom calls
- All phone calls in and out are recorded
- If a client calls me on my cellphone they are directed to the recorded 0800 number
- All recordings are held on the client’s personal file in order
- My statements of advice are a combination of documents that drip-feed information to clients as and when it is relevant to them.
- A one-page summary document spells out important aspects of my advice as a side-by-side before and after analysis. I direct them to that first so that they have a high-level understanding before delving into the detail
- Every piece of verbal advice they receive from me is followed up with an email
- Step 1 disclosure information is built into my email footer for all communication

Could a clever-clogs audit me and drive a truck through holes they perceive in my process. Absolutely! Would that same auditor be prepared to offer me a template that they guarantee would make my advice compliant in any and all situations? What do you think?

Don’t stress about your SOA despite the noise from people who don’t do them on a daily basis. Just be completely ethical in everything you do, explain things to your clients clearly and record everything.
On 10 May 2024 at 2:38 pm Backstage said:
@37 years too long, excellent sum up and very unfortunate for you. I can only imagine the anxiety this caused.

What makes matters worse is marketing departments (or product makers) at insurance companies feel they need to make more fancy variations of income protection, eg: household expense cover, mortgage repayment cover etc etc etc. Then we could get asked, why did you not tell the client about this?

There is enough work to have a client clearly understand the very basic nature and function of the core benefit of most product without adding more and more and more. We all know that right now especially for most clients BUDGET is the major factor. Average premium for most advisers has reduced on new business. The cost of constructing all the various documents (all compliance) has gone up.

To your point, there is not one magic template that guarantees or assures an adviser they have completely protected themselves. Likewise, a good employment lawyer will always find a hole in the best process when having to let someone go in an employment situation. A tenant will almost always win against a landlord in a dispute. Despite this, all the points you made about recording are excellent.
On 10 May 2024 at 3:56 pm w k said:
When I join the industry in the early 80s, one of the lessons taught was "qualify your prospects".

My 2-cents tip.
1. Be aware of the "short-term gain, long-term pain" prospects.
2. Don't hesitate to dispose clients once you discover their true unwanted character.
On 16 May 2024 at 7:23 am JPHale said:
@37 years too long; thanks for your insights and concise point. “Just be completely ethical in everything you do, explain things to your clients clearly and record everything.”

Despite everything you do, clients will still not understand everything. I had a case yesterday where I had been frustrated with the client. Not enough engagement and giving indications of not understanding.

“Smacking” them with “Why am I involved if you're not going to trust my advice?”, I find they completely misunderstood what was advised and did something completely opposite to that advice as I suspected, putting them at risk of not having what they need.

We’re now working to solve the issues, and while I'm told I have overkill on what I do, I'm not at the level you were with your complaint. I do have everything on this one recorded.

We almost need a complaints register for clients that have identified risks and lack of engagement to protect yourself here.

@W K absolutely, you need to have a client clear and engaged with the advice process, however, even with good qualifying you can still have the example I had above.

@Backstage, yup with risk advice budget is always the limiting factor.

Provide overview advice and present the concepts then once the client has a framework to make good decisions and decides on cover priorities then you can talk about specific product solutions.

The idea that you're going to get clear decisions on product solutions from clients at first meeting is delusional. It's only after applying their numbers to the product areas will you get a meaningful guide from clients. It's at that point you can provide the more nuanced product solution.

And yes, insurers are not helping with the slight variations on benefits they are offering making the market even more confusing. Which is driving this multi tiered approach to providing advice as each step dives deeper into the swamp of options.

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