We have compiled a series of steps that makes sense of the "clear, concise and effective" requirement for Statements of Advice (SOAs) in practice. This is based on our experience with hundreds, if not thousands, of SOA reviews.

6. Provide specific and detailed recommendations

When setting out your specific recommendations, make sure that you include all important aspects of the advice. Not only is this good practice, it's also a legal requirement that you set out the advice in "the level of detail ... a person would reasonably require for the purpose of deciding whether to act on the advice". For example, if you are recommending income protection cover, you need to specify the amount of cover, the waiting period, the benefit period and, of course, the policy and insurer that has been recommended. You also need to specify whether you have recommended cover on an agreed or indemnity value basis and with level or stepped premiums.

7. Explain the reasons underlying the recommendations

Similarly, it is also a legal requirement that you explain "the basis on which the advice is or was given", again, in "the level of detail ... a person would reasonably require for the purpose of deciding whether to act on the advice". Using the same income protection example, it is not enough to simply explain why you have recommended income protection cover. You also need to explain the basis of all important aspects of your advice; why you have recommended the amount of cover, the waiting period, the benefit period, as well as the particular policy and insurer. You also need to explain why you have recommended cover on an agreed or indemnity value basis and with level or stepped premiums.

8. An SOA shouldn't list client's decisions

You should ensure that your SOA sets out the recommendations you give your client, and is not a record of your client's decisions in relation to the advice. In practice, this means that if, for example, your needs analysis identifies that a client requires life cover of $1,000,000, you should recommend life cover of $1,000,000 in the SOA, even if you are certain that the client will only proceed with obtaining a lower amount of cover. A client can make whatever decision they want – the SOA should demonstrate that, whatever decision the client makes, it was informed by sound advice.

9. Explain risks associated with the advice

An SOA must also clearly explain any risks associated with the advice, using language that your client will understand. We regularly see SOAs that contain inadequate risk disclosure; either because important risks of the advice have not been included in the SOA, or because the risk disclosure has not been tailored to the advice or the client. No doubt, you will have also had discussions with your client regarding the risks of the advice. In addition to keeping detailed file notes of these discussions, you should also refer to what was discussed with your client in the SOA. This is an important risk management strategy. In the event of a dispute about risk disclosure, it will be easier to demonstrate that you adequately disclosed the risks to your client.

10. Include best interests considerations

Finally, it is good practice to explain in the SOA why your advice is in your client's best interests and why your client is likely to be "better off" as a result of your advice. If you have followed our tips above, this should be a relatively simple task.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.