Customer needs analysis and ethical lending practice
Domain 9 - Customer needs analysis and ethical lending practice
This domain tests whether the adviser understands the client's objectives, vulnerabilities and the suitability of the recommendation.
Core rules
- Establish goals, time horizon, risk tolerance, liquidity needs and exit strategy before selecting a product.
- Identify vulnerabilities: age, health, limited English, financial hardship, coercion or elder abuse.
- Disclose conflicts and commissions; recommend products that meet the client's needs rather than the adviser's remuneration.
- Document the client's priorities and why alternatives were rejected.
- If no suitable product exists, say so and decline to recommend.
Worked example
A 68-year-old borrower wants a 30-year interest-only loan to buy an investment unit, relying on rent and NZ Super. The loan has no realistic exit before retirement. The adviser should test servicing on a principal-and-interest basis, consider a shorter term or a smaller loan, and document why the original request is unsuitable. If the client cannot service a principal-and-interest loan, the adviser should not recommend it just because the client insists.
Traps
- Substituting the client's stated preference for a needs analysis.
- Ignoring that interest-only ends and repayments jump.
- Failing to record vulnerabilities and safeguards.
- Letting commission influence product choice.
- Assuming a joint application means both borrowers understand the risk.