COLUMNS • INSURANCE
Insurance adviser conduct obligations: part IV Steve Wright explains what insurance advisers will need to demonstrate to clients, and what constitutes giving “suitable” advice. BY STEVE WRIGHT
C
ode Standard 3 requires that all financial advisers give advice that is suitable, having regard to the nature and scope of the financial advice. In addition, Section 431L of the FMC Act requires that advisers must exercise the due care, diligence and skill that a prudent adviser would exercise in the same circumstances. These requirements effectively say: “You must know what your client is asking you to do for them, do that competently and properly, and, you will be judged by the standard of the reasonable prudent adviser.” This is the minimum level of competence required. If you promise specialist advice or superior advice or service, then a client will likely be entitled to expect a higher level of service, skill and knowledge, from you. “Suitability” will likely be judged on the service you have agreed to do for the client (your scope of service), the client’s needs and your associated recommendations.
Code Standard 3 obligations The commentary to the Code Standard 3 says that suitable advice should be based on reasonable and appropriate grounds, such as those in relation to: •
any strategy supporting the advice
• any underlying assumptions • any financial advice product • 032
TMM 4
the client’s relevant circumstances.
The commentary goes on to say the following. • “Depending on the nature and scope of the advice, a detailed analysis of the client’s circumstances may be required, or it may be reasonable to make assumptions about the client’s circumstances based on particular characteristics of the client. • “If the advice includes a comparison between two or more financial advice products, the advice must be based on an assessment of each product. • “An adviser can rely on another person’s assessment of a product or strategy if the adviser can demonstrate it is reasonable to rely on the other person’s assessment.” For typical life and health advice, most of the time the client’s actual circumstances are absolutely relevant and necessary. But even then, some assumptions based on the client’s characteristics may be required (like the probable incidence of disability depending on the client’s age and occupation).
Making a product comparison The requirement to make an assessment of products where a comparison is being made will be of interest to insurance advisers, particularly where existing products are being replaced. What is required to comply?
