A Statement of Advice (SoA) is the legal name for a document a licensed financial adviser must give you when they offer you advice.

Never ever trust Statements of Advice in their current incarnation. If you live in Australia, reports from the hearings by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry will have revealed some—but not all—of the reasons why today’s SOA can’t be trusted.

In 1996 CRI was invited by the government regulator to help develop methods for regulating financial advice. Our advice was based on the known good practices at that time (Sless, D 1996. Regulating financial advice, Australian Securities Commission). It was never implemented.

Nonetheless, we continued to do research and development work for the industry and also for the Financial Planning Association of Australia, the chief industry body representing financial advisors. We made some contributions to its 2006 publication A guide to the development of effective Statements of Advice (for some reason the FPAA never distributed this Guide to financial advisers!). More recently CRI was engaged in helping the regulator—the Australian Securities and investment Commission (ASIC)—with SoA design.

Most of this work was conducted under confidentiality agreements, so I will not mention specifics, unless we are asked to do so by the Royal Commission. But we can make one general observation.

Not a single SOA written, designed and tested by us over the last 22 years has been allowed by industry or government to reach acceptable consumer standards.

This is in stark contrast to our work in areas such as medicine information, forms design, billing, letters, and instructions where we have designed and tested model designs to a high standard for consumers and citizens.

The only criterion some SoA may have met is that of credibility; but in the wake of the evidence presented to Royal Commission, with many financial organisations facing possible negative findings and prosecution, even credibility has vanished.

Four factors are responsible for this outcome:

  1. What is offered by financial advisers today is not financial advice suited to people’s needs but rather a range of financial ‘products’ developed by banks, investment and insurance companies designed to maximise commissions and profits.
  2. Financial advisors, even when using good writing skills, write SoA defensively to protect themselves against possible litigation rather than to help people.
  3. The legislation governing financial advice and ASIC guidelines is not fit for purpose.
  4. Poor technical implementation using word processing rather than document assembly software leads to just usable documents, but do not encourage reading.

So at best an SoA is just about usable. It can be read, but people probably don’t, except for the ‘Executive Summary’, then they’ll sign it and guiltily stuff it into the box with all the other unread insurance policies and loan agreements. As an example in another field, the designs we created in 1994 for Consumer Medicines Information were developed for primitive word processor technology and sadly have never been updated by the pharmaceutical industry. The text is usable—but would you want to give them to customers in a pharmacy?

And this is not the worst.

As ASIC discovered in January this year, from examining SoAs from large institutions,

…in 75% of the advice files reviewed, the advisers did not demonstrate compliance with the duty to act in the best interests of their clients. Further, 10% of the advice reviewed was likely to leave the customer in a significantly worse financial position.

The best advice then is to stay clear of today’s SoA. Their greatest achievement seems to be in taking your limited wealth and redistributing it to the already wealthy.

This is not the first time I have written about the financial industry, and you may find some of my earlier comments illuminating. See:
Clear, concise, and effective
Regulating financial information for consumers
Re-branding: repainting the dunny door
Financial literacy: the paying victim
Rethinking financial literacy/

But all is not beyond hope
Clear concise and effective consumers financial reports

David Sless on SoA