Sales process and advice: financial needs analysis, risk profiling, product presentation and record keeping
The sequence
A defensible sale follows a sequence: fact-find and financial needs analysis (FNA); risk profiling where relevant; product selection and comparison; clear presentation of features, charges and risks; application and signatures; post-sale delivery with cooling-off rights; and a complete record.
Financial needs analysis
For long-term insurance, including investment-linked and retirement products, the FNA is mandatory. It records the client's needs, dependants, income, assets, liabilities, existing cover, investment horizon, liquidity needs and attitude to risk. The client signs it and receives a copy. Where the client refuses to give information, record the refusal and the warning that advice is limited; where no suitable product exists, say so and do not sell.
Risk profiling and product matching
The client's risk tolerance must be matched to the product's risk rating. An ILAS product carries investment risk, market risk, liquidity risk and, for some structures, credit risk of the issuer. High expected returns do not override a mismatch with the client's horizon or capacity for loss.
Presentation and comparison
Explain premiums, charges, surrender values, exclusions, waiting periods, non-guaranteed elements and the consequences of early surrender. Provide the required documents - the product summary or Important Facts Statement, the offering document for ILAS and the benefit illustrations - and explain them rather than merely handing them over. For a replacement, disclose what the client loses.
Cooling-off and delivery
Life insurance policies carry a cooling-off period - currently 21 days from delivery of the policy or of the cooling-off notice, whichever is earlier - during which the client may cancel; for ILAS the refund reflects market value.
Records
Retain the FNA, risk profile, proposal, illustrations, correspondence and the reasons for the recommendation for at least seven years.
Worked example
A 62-year-old with HK$600,000 in savings wants a five-year ILAS at HK$100,000 a year. The FNA shows the premiums would consume most of her capital and her only income is a pension. The adviser documents the affordability problem, offers a lower premium or shorter commitment, and if she refuses, declines to proceed. Selling the original plan with a signed FNA would still be mis-selling.
Traps
- Skipping the FNA because the client is “experienced”.
- Confusing the client's risk profile with the product's risk rating.
- Letting the client sign blank or incomplete forms, or signing for them.
- Not giving the client a copy of the FNA.
- Failing to document advice the client rejected.