Opinion: Selling is essential in life insurance, but as necessary as it is, it must now be accompanied by suitable advice. We live in a new advice environment – changes are likely needed from what we did before because there are several new expectations.
- Advisers must be competent enough to give advice with due care diligence, skill and competence – advisers must know their stuff!
- Clients must know and agree the advice they are signing up to get
- Clients must understand the advice they get
- Clients must get suitable advice, and that suitability must be ‘evidenced’
- Clients must be given enough information to make informed decisions.
So how does a FAP navigate this morass without becoming tangled up in time wasting, potentially expensive, complaints and investigations?
For me the most important is to ensure FAPs and their advisers have a fundamental mindset change, away from ‘we sell’ to ‘we advise’.
A life adviser’s job is not easy, it requires excellence in two usually polar opposite skills – selling (‘seeing’ people) and backroom analysis/advice/administration. Without a suitable mindset, doing what is now expected may be haphazard, risky and probably inefficient in the long term. Being great at both selling and at giving great advice must surely be the goal, especially for FAP’s responsible for adviser’s advice suitability.
A mindset that values giving great advice will naturally recognise that more is required from advisers under the new rules:
- Advisers must become skilled at giving advice. This requires constant effort to increase knowledge and hone advice skills. Advisers must know their products very well, but it’s not just about bare product features. There is a lot of other financial, legal, medical, commercial, ‘stuff’, advisers must know in sufficient detail to be able to give suitable advice.
- Advisers must also become skilled at drafting the ‘paperwork’ now required. ‘Paperwork’ creates the evidence necessary to prove an adviser has done all that is expected of them now. Unfortunately, more is required, not less.
- Of course, suitable advice requires a detailed knowledge of the client and their needs. Advisers should ensure their fact find and needs analysis is comprehensive and encompasses everything needed to give suitable advice. Ensure the fact find, in particular, is designed to gather all necessary information for giving suitable life advice. (I’ve heard of life adviser’s facts being gathered by their mortgage adviser colleagues to shield the client from a second round of fact finds. I think that comes with some potentially big risks).
- Avoid jargon. Explain everything, the process, the identified risks and solutions/products/recommendations and all the stuff that goes with plan implementation and management, in plain, clear language – checking clients understanding as you go along – answering questions frankly and accurately (and confirming in writing where necessary). The Code requires that advisers take all reasonable steps to ensure their client understands their advice (and it’s probably wise to keep a record of those efforts).
- Once identified, advisers must agree the nature and scope of advice to be given with the client (who must understand it). There is the regulated disclosure which must be complied with, but I believe more is required to ensure advisers are doing everything their client is expecting from them. A diligently crafted scope of service agreement specific to each client, setting out precisely the advice to be given is essential. Without the necessary detail how can advisers ensure they are doing all the client asked for? It opens up the opportunity for complaints.
- A proper record of advice given is also necessary, but a statement of advice is not merely a record of implementation, it must include substantive advice and suitable recommendations and options. Drafting a suitable statement of advice is a major step in recording the advice given and why the advice is suitable. It must include sufficient information, justifications and reasoning, to allow clients to make informed decisions.
However you do it, statements of advice and other client communication should be clear, logical, simple to understand and as information rich as is necessary. It must also be recorded, electronically or in writing.
Taking short-cuts with advice and paperwork will potentially allow the opportunity for clients, with the benefit of hindsight, to make complaints. Identify issues that can allow for the possibility of convenient complaints, maybe 20 years from now, and address them up-front.
Finally, I don’t believe it’s any argument to claim clients will never read what you give them. No one wants to swamp clients, but comprehensive life insurance advice comes with lots of issues clients must understand and agree to. Clear and unambiguous records, drafted in a way a complete stranger can pick them up in 20 years’ time and understand:
- exactly what the client wanted and needed;
- how and that you delivered that; and
- that the client understood and could make informed decisions;
would be my aim.
---
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.
This article is for information purposes only, its content is the writer’s opinion and intended to be of a general nature, does not take into account any person’s specific circumstances, and is not financial, legal, or other advice. It is recommended you seek advice from a suitable expert before taking any action in relation to anything contained in this article.
