Business conduct requirements: conduct of regulated activities, suitability, disclosure, remuneration and conflicts
The conduct standard
The IA's conduct requirements for licensed intermediaries rest on a few principles tested by scenario questions: honesty and fairness, diligence, competence, know your client, disclosure, suitability, management of conflicts, responsible remuneration and proper records. The benchmark is what a reasonably prudent intermediary would do - not merely what the contract permits.
Know the client and suit the sale
Before recommending a product you must understand the client's circumstances, objectives, financial position and risk tolerance, and the recommendation must be suitable for that client. Suitability is not satisfied by a signed declaration; if the client insists on an unsuitable product, document the advice given and decline where the mismatch is serious.
Disclosure
Clients must be told your capacity (agent of which insurer, or broker acting for the client), the insurer's name, the product's nature and key risks, and your remuneration. Remuneration disclosure is fuller for brokers, who must account for commission and fees; agents disclose commission on request. Affiliation and any material interest in the transaction must also be disclosed.
Conflicts of interest
Identify conflicts, avoid them where they impair objectivity, and otherwise manage them through disclosure, segregation and monitoring. Disclosure alone does not cure a conflict that has actually distorted the advice. Commission structures that reward volume must not drive switching or replacement (“churning”) of policies that still serve the client.
Records and fair presentation
Record the advice, the comparison made and the reasons for the recommendation, and keep the record for at least seven years. Marketing must be accurate and balanced; illustrations must never be presented as guarantees.
Worked example
An agent compares two savings plans. Product B pays her 40% more commission but has a longer breakeven period and a weak surrender value for a client who may need funds in three years. The compliant answer is to recommend A and record the comparison and the client's liquidity need. Recommending B and disclosing the extra commission does not fix it - the advice itself is unsuitable.
Traps
- “I disclosed the conflict, so it is fine.” Disclosure manages a conflict; it does not license bad advice.
- Assuming conduct rules apply only to life insurance - they apply to general insurance too.
- Treating a client's signature as proof of suitability.
- Describing non-guaranteed benefits as guaranteed, or promising returns.
- Thin file notes: if it is not recorded, the IA will treat it as not done.