Originally published |29 March 2018
Some habits are hard to break.
Being a financial adviser/planner (whichever term you want you use) means you are providing guidance and direction to your clients, not simply taking direction from them and placing products.
This seems to be the case mostly with life insurance advice when it appears that advisers are still uncomfortable in having the discussions with the client.
That discussion is need versus affordability.
Too often in my reviews of advice I read statements such as “you have told me this sum insured is adequate” or “we have not conducted a needs analysis as you have advised me of the sum insured that you require” or variations of these. But do these statements absolve the adviser of their obligations?
The simple answer is no. The reason is also relatively simple.
Just because a client says they want something, or sets a sum insured, does not absolve you of your obligations to ensure it is in their best interest.
Think of it this way. I have two kids, one 13 and one 16, both want to do things all the time, but as a parent, I need to make a decision for them that is right for them because they won’t think of all the consequences of their request.
The same occurs with clients, they will have a preconceived idea based on third party conversations and it is up to you as the adviser to guide them and show them the consequences of their decisions.
So how do you achieve the result with your client?
One – document what the client needs – this is the basis for your advice.
Two – analyse needs versus affordability – this provides you with evidence that you have investigated strategies.
Three – document both in the SoA – a well formed SoA will outline what the client needs and then offsets that with what they can afford. By doing this you highlight to the client the compromise involved.
Restructuring your advice in this way does not need to add pages to the SoA but simple things like this can add more weight to the appropriateness of your advice.