EDITION 3 | NOVEMBER 2021
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Level term insurance is typically around 20 % more expensive than decreasing term , so being able to tell the story of advice , where the client ’ s voice can clearly be heard , so the advice can be appropriately tailored , is therefore crucial .
Where advisers potentially get this wrong is when they recommend level term assurance , where in fact , a decreasing term assurance solution would appear to fit the bill , and this is typically seen when looking at solutions that are put in place to protect repayment mortgages .
Where does this sit with the regulator ’ s expectation from a compliance perspective ?
Certainly from the FCA ’ s Principles and ICOBS , you can highlight the requirement to act honestly , fairly and professionally in the client ’ s best interests , and you must ensure that your advice is suitable for your customers and from feedback we have received over the years from both the FCA and FOS , they would expect the advice given to match the documented needs and objectives of the client , i . e . a decreasing term plan to cover a repayment mortgage and level term to cover an interest only .
As always , the best advice is to maintain the compliance mantra of taking solid notes during the fact-finding process and using the client ’ s own words , where appropriate , to explain the story of advice and confirm the clear needs and objectives .
Any additional requirements for life cover over and above the ability to repay a mortgage should , in their eyes , be treated separately , as an additional need and objective .
This begs the question , whether a menubased solution , holding the different types of cover that can be put in place to match the client ’ s documented needs a plausible solution ? Depending upon premiums , research and affordability , the answer would appear to be a resounding ‘ yes ’!
However , if an adviser is aware of the issues and yet still thinks the client ’ s best interests are served via level term advice and wishes to take a risk-based approach , are there any best practice or file construction recommendations ?
As always , the best advice is to maintain the compliance mantra of taking solid notes during the fact-finding process and using the client ’ s own words , where appropriate , to explain the story of advice and confirm the clear needs and objectives . As a side benefit , this will also assist any third-party file checks in the future .
For additional clarity , you could also provide your client with an illustration or premium information for the corresponding decreasing term option , thereby placing them in a fully informed position prior to making a decision , whilst also ensuring your advice file demonstrates the same . This information can then all be clearly confirmed within a suitability report that confirms the various plusses and minuses of taking this advice route .
Finally , a declaration or statement written in the client ’ s own hand and signed by them can also be a compelling consideration when reviewing advice , but this will not be a guarantee that your advice will be judged favourably in the future , as each case will be judged on its individual merits by the FCA or the FOS should matters end up in their arena .
Those that might want to explore this further can visit the Financial Ombudsman ’ s website , www . financial-ombudsman . org . uk , where further details can be found in the Decisions and case studies area . Simply select case studies , where you can download real-life case studies and see the FOS ’ s feedback on this advice area .
Protection Matters runs each month and sets out to tackle many of the commonly asked protection queries or perceived grey areas as highlighted by our advisers . Please feel free to register for future editions and should you have any queries you might like resolving , contact the Protection Helpdesk on 01484 439121 or drop the team an email at protection @ simplybiz . co . uk