Client information gathering, needs analysis and the advice process
What this domain tests
The advice process under the Financial Advice Code: how to gather client information, identify needs, test suitability and document advice so the client understands it.
The process
- Scope and engagement. Agree what is being advised on and what is excluded.
- Information gathering. Collect financial position, goals, dependants, existing cover, risk tolerance, health and occupation where relevant.
- Needs analysis. Quantify the risk: rebuild cost, contents value, liability exposure, income replacement, business interruption and debts.
- Research and suitability. Compare options on cover, terms, exclusions, excesses, insurer strength and premium, not premium alone.
- Presentation and understanding. Explain the recommendation, alternatives, costs and consequences in plain language and check comprehension.
- Disclosure. Fees, commissions, conflicts and any limitations.
- Implementation and review. Place cover, confirm it, diarise review.
Code standards
Suitability (Standard 3) and client understanding (Standard 4) are central; record-keeping supports both. There is no single prescribed statement-of-advice format, but the file must show the basis for the recommendation.
Worked example
A couple with an $800,000 mortgage and two young children have life cover only. The adviser identifies a need for income protection and house cover. The house sum insured is calculated on rebuild cost, not market value. The adviser recommends a policy with a longer wait period to keep premiums affordable, explains the trade-off, records the client's acceptance and discloses commission.
Traps
- Collecting facts without analysing needs.
- Recommending the cheapest premium rather than suitable cover.
- Failing to document limitations or the client's decisions.
- Assuming existing cover is adequate without checking sums insured and definitions.