Pre-populated advice records
Financial Sector Conduct Authority
In terms of section 9 of the General Code of Conduct for Authorised Financial Services Providers and Representatives, 2009 (General Code), a provider must maintain a record of advice furnished to a client. The General Code prescribes the information that must be recorded in the record of advice when a financial product is replaced with another financial product.
Concern raised by the FSCA
It has come to the attention of the Financial Sector Conduct Authority (the Authority) that there is a practice in the industry that records of advice on replacement products are prepopulated by certain financial institutions (prepopulated records) and made available to the industry. The Authority is concerned about this practice, as various instances of incorrect advice, based on factual errors on the prepopulated records, were identified. The net result is that clients are given advice based on incorrect comparisons of policy wording, fees, benefits and exclusions on prepopulated records.
The Authority is furthermore concerned that when providers receive prepopulated records from other sources, they don’t necessarily confirm that the information contained therein is correct. In the absence of such individual confirmation by the provider, the client may receive information that is inaccurate. When a client makes a decision based on such incorrect information, the provider might be held responsible for any damages that the client may suffer as a result of this decision.
We strongly agree with the FSCA and always recommend that advisors confirm the accuracy of all information on prepopulated documents before they use it to provide recommendations to their clients.
Unfortunately, with the publication of a format for the replacement of an individual risk policy by the FSCA earlier this year, it is understandable that this format can be considered by some advisors as a template for use in any and all instances without further customization. I encourage you to read our previous article on “The Final Format of the Replacement Advice Record” which clearly outlines the various aspects that require customization and completion by the financial advisor in order to outline the specific recommendations relevant to each unique client.
Our recommendation is that you scrutinize your existing sales procedures and identify exactly how a policy replacement is handled. Once this process is identified, ensure that you implement additional controls to prevent the use of prepopulated forms by conducting random sampling. You may also consider implementing a process whereby system generated records are created based on advice given, which will greatly reduce the risk of incorrect advice appearing on documents in all areas of your sales process.