LECTURE 11 – STATEMENT OF ADVICE CONSTRUCTION
STEPS IN THE FINANCIAL PLANNING PROCESS
Step 1 — Collect and assess the financial data of the client.
Step 2 — Determine the objectives and goals of the client.
Step 3 — Identify any financial problems that may exist.
Step 4 — Prepare a written plan which contains alternatives and recommendations.
Step 5 — Implement the agreed written plan.
Step 6 — Review the plan.
Step 1 – Collect Data
Clients will be a diverse group, with different backgrounds, experiences, resources, concerns and goals: each will
present a unique challenge.
It is both a legal requirement and common sense for the financial advisor to be aware of the client’s specific
Clients are all at different stages in their lives - Don’t confuse age with life stage
Each life stage presents differing issues and problems. There are a number of identified life stages:
o Savings versus consumption phase — generally younger people, trying to get established, new jobs,
wanting cars, saving for home, enjoying life;
o Early family formation — young families, both partners may be working, issues with mortgage
payments, child care, school fees, need for insurance, trying to stretch their budgets;
o Wealth accumulation phase — the mortgage is not taking up so much of their income, they are earning
higher salaries, balancing work and leisure, assisting their children, creating personal wealth and saving
for their retirement;
o Approaching retirement — generally associated with people in their early fifties up to age 65 — people
seeking to maximise their retirement savings so that they can comfortably fund their retirement income
o Post-retirement — managing income needs to ensure a life-long comfortable retirement.
The information in this category includes:
o Risk Tolerance Assessment
o Financial Literacy Assessment
The information in this category includes:
o Goals and objectives;
o Issues and concerns; and
o Preconceptions as to the client’s needs in retirement
To be compliant, the client data form or data collection document must be signed by both the advisor and the client.
Step 2 and 3: Determine the Client’s Objectives and Goals and Indentify any Financial Issues
Determine clients goals and objectives both for the short term and long term.
o Determine if the goals and objectives are attainable given the client’s current and expected financial
If, after analysis, some goals are unattainable or not obtainable within the time frame the client has set, then
the financial advisor must work with the client to determine trade-offs and prioritise the goals.
Clients may have unstated goals, which the financial advisor may have trouble uncovering. These can only be
identified through extensive questioning of the client and sometimes only through observation of the client’s
body language and facial reactions when questioned or when certain issues are discussed.
The financial advisor will have to seek:
o Points of clarification;
o Assurance and verification that the data has been interpreted correctly; and
o Discussion regarding clashing objectives.
Generally speaking, clients will have to consider:
o Saving more and spending less – saving smarter and more tax effectively; o Working longer – postponing planned early retirement;
o Accepting a lower income in retirement; or
o Accepting a higher level of investment risk seeking higher levels of return.
Make certain assumptions in order to develop the strategy and recommendations for the client.
Ensure that the client understands the need for these assumptions and how they will impact the advice being
o These assumptions need to cover personal events in the future, ongoing receipt of current income
levels, and continuation of good health.
o They also need to include assumptions about the behaviours of markets, regulations, inflation
These assumptions will need to be tested at each annual review.
Step 4: The Preparation of the Written Plan
Most SOAs are written with a standardised format. To start they have:
o A personalised and complying covering letter;
o A standardised and complying cover page;
o An executive summary that provides the client with a general understanding of the actions
recommended and a summary of expected outcomes; and
o A table of contents that clearly outlines the structure of the soa.
The covering letter should use professional but not necessarily formal language. The language you use for this
letter, as in the rest of the written plan, should be clear and concise and readily understandable to the client
The covering letter should:
o Be written on letterhead with contact information
o Include the name of the licensee and its licence number and ABN; and
o Be signed by the financial advisor, stating that he or she is an Authorised Representative (or
Representative)of the Licensed Dealer.
o This letter should invite the client to contact the financial advisor if any of the information is incorrect or
if the client requires clarification of any of the issues or recommendations.
o It also needs to warn the client that decisions regarding implementation of the SOA must be made
within 30 days. After that, it may need to be reviewed to ensure that any changes over that time will not
affect the recommendations that have been made.
o It is also important to get the client to understand the need for annual reviews.
All SOAS require a cover page that provides the following information:
o That it is a Statement of Advice;
o The name of the plan recipient;
o The date that the plan becomes effective;
o The name and contact details of the financial advisor who provided the plan;
o The name and contact details of the licensee who authorised the SOA;
o A statement that the plan is private and confidential; and
o A warning box that reminds the client that this is an important document, that it should be read
carefully and in full, that if the client has any questions the client should speak with the financial
advisor, and any information required about cooling off periods.
The Executive Summary
The Executive Summary should be no more than two pages in length and in bullet point form.
The Executive Summary sets out the key personal details of the client, so the client can see that the financial
advisor has understood his or her position.
The second section summarises the client’s goals and objectives, in his or her terms, so the client can see that
the financial advisor understands what is wanted from the SOA and the planning process.
The next section needs to state each main recommendation, who is to act, how much money is involved, where
the money is to come from. The final section, after providing a warning in relation to projections, needs to state the expected outcomes
from each investment portfolio, including retirement savings, and confirm likely goal achievement, including
adequate retirement income past the client’s life expectancy.
Table of Contents
This page clearly outlines the structure of the plan and can be used in future to locate specific sections of the
Keep to major headings so that the plan does not seem to be overly complex.
The body of the SOA usually has six distinct parts:
o The basis for advice: client details, assumptions, discussion of risk tolerance and asset allocation and,
potentially, a source of funds and a use of funds table;
o The recommendations, their justification, their impact on the client’s cash flow and net worth, and a
cost-benefit and risk analysis;
o An implementation schedule;
o Disclosures and disclaimers;
o Client sign-off (authority to proceed); and
o Appendix (including product disclosure statements).
The Basis for Advice
This section provides the information upon which the financial advisor has based his or her advice. If this section
is not completed fully and then used to make recommendations, the advice provided will be inappropriate.
This section must have:
o A clear and concise restatement of all of the pertinent client information;
o An estimated cash flow for the current financial year that identifies any excess savings capacity which
the client can use to fund goal achievement;
o A chart showing the client’s assets and liabilities;
o An analysis of the client’s current investments (including superannuation);
o A full discussion of the client’s personal risk tolerance, what asset allocation he or she would prefer to
hold and what benchmark asset allocation the client will need to accept if he or she is going to achieve
o A list/discussion of all personal and financial assumptions;
o A discussion of the client’s concerns and issues that may impede goal achievement; and
o A source and use of funds chart if it will clarify the client’s situation and the funds available for investing.
Cash flow, assets and liabilities
The core of every SOA is a statement and analysis of the client’s current cash flow which sets out his or her
income and expenditure and indicates available cash after all expenditures have been met. The financial advisor
can then use that cash flow to meet the client’s goals and create future wealth.
The financial advisor needs to ensure that the client has an emergency fund set aside to meet any unexpected
needs for immediate cash.
An assets and liabilities table can provide a significant amount of information. The financial advisor should be
able to see what the client owns, any debt, when the debt is expected to be paid, what cash the client has and
what other investments are held. With this knowledge, the financial advisor can move to reduce debt,
recommend sale of non-performing assets and, hopefully, free up funds for investment.
Risk Tolerance Assessment
The analysis of current investments should include a full discussion of the client’s personal risk tolerance, asset
allocation preference and what benchmark asset allocation the client will need to accept to achieve his or her
The result of the client’s risk tolerance should be a preferred asset allocation, based on the level of growth
assets the client is comfortable with.
It will be necessary for the financial advisor to make assumptions about the future and state these assumptions
early in the plan. The financial advisor should ensure that the client reviews this section and understands the
impact of these assumptions on the advice being provided. Concerns and Issues
There will be specific concerns that the client will voice, questions they will ask and attitudes or financial
situations which will impede goal achievement. It is important to summarise and settle these concerns and
issues in writing within the SOA before beginning work on specific recommendations.
Sources and Use of Funds Chart
Sometimes it is necessary to move clients’ funds around in order to clear up debt, sell non-performing assets
and identify funds available for investing. Where there are a number of cash movem