Why suitability reports are required for protection products
We spend a lot of time talking with clients about the necessity for a suitability report for protection clients. There seems to be a disconnect between advisers who focus their business on this area, and those who take a more holistic approach to their advice.
Clearly advisers who are working in the investment or pensions arena, understand the need, and the value of the report in ticking the various risk areas the advice can throw up. But in protection and mortgage cases, we encounter many advisers who see this more akin to an execution only sales activity, yet in most cases they are advising on a productâ€™s suitability.
Essentially if youâ€™re making a personal recommendation for a product you are giving advice even if you are giving the client what they want, and just so if you are recommending no action. This is your evidence of TCF, without covering the Key facts of the product and linking them to the specific client, you open your self to liability.
The key to a good suitability report is being able to cross reference the â€˜needs and objectivesâ€™, with â€˜the recommendationâ€™. I focus here on these two areas of the report with protection in mind.
Needs and objectives
This should provide a snapshot of the clientâ€™s current position. By accounting the needs, circumstances and objectives you form the foundations upon which your recommendations are based. The amount of cover the client is looking for and for how long it is required; the reasons why the client needs a product and specific features of the product should contain, for example: guaranteed premiums; comments on any foreseeable lifestyle changes and details of any existing. This section needs only cover the needs and circumstances relevant to the advice you are giving and using relevant information from your fact-find should help you do this.
You do not need to specify in detail anything that is included in the insurer documents, but you do need to summarise the essentials of the policy, linking these in with the clientâ€™s needs and circumstances, so that the suitability of the recommendation can be demonstrated from the report.
So, you will need to include:
Deviation from the outlined needs will have to be covered:
If the amount of cover recommended was affected by the existence of other policies of a similar nature, for example income replacement policies, you need to explain the basis on which you arrived at your recommendation. If you are switching a contract, you need to make reference to the existing contract and justify the change. If the level of benefit or term does not match the facts from the original illustration you have given to the client, you should explain why. If the client decides for cost reasons to go for a shorter term or a decrease in the level of benefit you have advised you should cover this in the report. Finally, if you are recommending a new policy that appears to duplicate an existing one without cancelling the latter, you need to explain what is going on.