Purveyors of Advice or Order Takers?
For the FCA to raise non-advised and execution only
transactions at their June board meeting acts to highlight
the regulators concern generally surrounding this area.
Perhaps more importantly itunderlines a significant
move by customers, seeking a non-advice service from
firms rather than financial advice per se.
Both options must co-exist in today’s heavily regulated
world because they offer a degree of flexibility to
advisers wishing to adapt to conditions and situations
where customers are savvy enough that they know
what they need, are sufficiently empowered to make
decisions without the need for advice and prepared to
take responsibility for the decisions they make.
However, it can be very easy to stray from the rules,
either because of lack of understanding or heaven
forbid, convenience.
The consequences of such a deviation were highlighted
only too vividly in a recent FOS decision where a
complaint was upheld against an adviser because
they inadvertently failed to alter a few words in some
correspondence which purported to suggest that advice
was proffered rather than a [non-advice] service.
Setting aside for one moment the fact that FOS appeared
to have wholly discounted the intentions of each party
in the above case, the message cannot be any clearer:
there must not be any doubt as to the level of service
customers are offered and whether this service includes
the provision of advice or just information.
Where we think the adviser went wrong in the case
mentioned rests with the apparent conflict between
the service initially offered (and arguably understood)
and the subsequent contradictory written statements
issued.
What’s the difference?
By way of a reminder, an advised sale is where a
personal recommendation is made that is specific to
that particular customer’s demands and needs and
is not simply generic. A non-advised sale is the polar
opposite where no personal recommendation is made
to a customer in any shape or form [albeit the customer
still needs adequate information upon which to rely
when making an informed decision].
Similarly Execution-only – which mainly applies to
‘packaged’ investment products - is also a non-advised
scenario where customers choose not to receive advice.
So what are the dangers?
The biggest danger is where advisers inadvertently
provide advice despite agreeing to the contrary, or visaversa.
This can happen when, for example, advisers are faced
with questions like:
•
“What do you think?”
•
“Which is best?”
•
“Do you think I should have this one?”
RWA’s recommendation here is that advisers should
refrain from answering these types of questions and
confirm that the ultimate decision is the customers and
the customers alone, otherwise the dynamics of the
transaction would change from non-advised to advised.
So how do insurance brokers protect themselves?
The solution, believe it or not,
straightforward.
is relatively
IT’S ALL IN THE RECORD KEEPING:
1.
To prove that the sale was on a non-advised
basis, adviser’s records must be able to demonstrate
that the product was chosen by the customer without
any specific personal recommendation;
2.
To prove that the sale was made following advice,
the adviser’s records must be able to demonstrate
the reason why the policy recommended suited the
customer’s demands and needs
Either approach should be clearly articulated in a
demands and needs statement so as to leave the
customer under no illusion, and of course written in
clear, fair and not misleading language.
What action can you take?
RWA recommend the following:
1. Remind yourself of the key characteristics of advised
sales, namely:
• explaining why a particular policy would meet their
demands and needs; and
• providing a personal recommendation
2. Be careful not to stray into advice territory when
transacting non-advised business by ensuring internal
controls are sufficient to prevent this from happening.
3. Keep an eye on MI to monitor trends across the
business as a whole, or specific advisers.
4. Ensuring adequate records are retained to support
either the non-advised or advised basis of the sale.
Whether you are giving advice or simply taking orders
it is important your customers understand the nature
and extent of the service(s) you provide. This will not
have occurred if customers walk away from your office
confused.
Join the discussion
18