Engaging with your client
Financial needs analysis and proposals - Part 3
In Part two of our series of articles titled “Engaging with your client” we discussed the requirements regarding the introduction and the process to gather information from the client. In Part 3 of this series, we shall discuss two further actions namely conducting a financial needs analysis or assessment and formulating a proposal or making recommendations to the client.
Step 3: Conduct financial needs analysis and assessment
Prior to providing advice to a client the financial services provider (FSP) or representative must first analyze, assess and identify suitable financial products in accordance with Section 8(1)(b) and (c) of the General Code of Conduct for financial service providers and representatives.
It is of vital importance that the provider conduct and in-depth analysis of the client’s financial situation, experience with financial products, what risk the client is willing to accept and the financial needs of the client. Failure to conduct a proper needs analysis may result in the provider recommending products that are not suitable for the client's needs which may result in a complaint against the provider. A provider must also be able to demonstrate that it has conducted a needs analysis.
A financial services provider must at all times act with due care and diligence and to the best interest of its client. As such the financial services providers must ensure that the advisor does their homework when recommending a financial product to the client. An FSP is also required to ensure that they conduct due diligence on the product provider and objectively choose a suitable product.
If the financial product which the provider has identified is replacing an existing product( wholly or partially) the provider is required to make additional disclosures and draw comparisons between the product being replaced and the product recommended such as the cost of replacement, fees and charges, special terms etc. It is also the responsibility of the provider to take reasonable steps to determine if the product proposed is going to replace a product and ensure that the necessary disclosures are made in this regard. Please ensure that you discuss the requirement of additional disclosures with your compliance officer.
Step 4: Formulate a proposal and make recommendations
Once the financial services provider has analysed the financial needs and identified suitable products, the financial service provider must make the proposal or recommendation to the client. It is important that the client is provided with sufficient information to make an informed decision. It is for that reason that the provider must make sure that the client understands the advice and how the products work. To assist a financial services provider, the General Code of Conduct Section 7(1), sets out the manner and the information which a financial services provider is required to provide to clients. The list of information is stated below for your reference: