Processes Rupert Gough Processes Rupert Gough

Risk Replacement Advice Practice Standards

Background

The following document outlines MTG’s approach of advice practice wherever replacement of existing risk financial products is being contemplated.

MTG’s Replacement Business Policy requires that we conduct a comprehensive comparison between the original and proposed product/policy and identify features, benefits and risks related to replacing the product. In particular the risks of switching providers or cancelling a product should be highlighted.

We are required to report annually to the FMA on the level of risk replacement business and Kiwi Saver switching activity that results from regulated financial advice that we provide in the form of annual regulatory returns.

As well as conduct standards and regulatory obligations our product suppliers also put obligations on us to ensure that we treat replacement advice with due care, diligence and skill – examples include:

Partners Life – adviser must make clear to client any potential loss of certain rights, future guarantees and/or discounts which are dependent on the duration of the replaced policy and/or potential reduction or loss of coverage previously provided under the replaced policy dependent upon subsequent health changes, hazardous pursuits or the effect of suicide.

Asteron  – ensure to prioritise Customer interests when providing Financial Advice Services involving replacement business.

Chubb  – must comply with any rules, directions of guidelines Cigna may issue from time to time regarding replacement business, including (but not limited to) any requirements set out in the Chubb conduct standards.

 

MTG Replacement Advice Practice Standards

1.1 Identify if client holds existing financial products

Does the client hold an existing financial product? Is the client an existing client of MTG or new to the entity? 

1.2 Identify if the financial product is an MTG approved product?

Has the existing financial product been assessed as suitable through MTG’s product selection process? (refer Product Selection Policy)

Explanation

MTG advisers can only advise on existing or new products that they are suitably qualified and accredited to advise on being those approved via MTG’s Product Selection process. Where an existing product does not meet MTGs product selection criteria (i.e., could include legacy products that are closed to new business, no longer on sale) then we will have to manage these through our exception framework*

*Refer MTG’s Product Selection Policy

 

1.3 Assess the existing product for suitability

Does the existing product need to be considered and analysed relevant to the client’s current situation and could it reasonably meet the client’s objectives, needs and priorities?

Explanation

Only where there are grounds established that an existing product does not meet a client’s objectives, needs and priorities should we consider recommending the product be replaced. If the existing product sits with an MTG approved supplier then the following criteria must be considered when recommending a replacement product.

  • The recommendation has been assessed against MTG’s Product Selection Framework

  • changes to benefit periods

  • changes to wait periods

  • changes in sums assured

  • changes in premium structures

  • any differences in covered medical conditions

  • any changes with existing or new exclusions and/or loadings

  • any other costs to change products or providers.

  • the clients risk profile, investment horizon     

 

1.4 Assess your recommendation for any conflicts of interest

Your recommendation must not be influenced by any conflicts of interest such as incentives, bonuses or soft dollar commissions. Where a conflict arises, we have a duty to act in the best interests of the client. MTG has developed the following guideline to assist our advisers to help manage any conflicts:

  • Where a client is an existing MTG client then carefully consider the suitability of any commission arrangements particularly in the instance of any like for like product replacement (i.e., term life cover being replaced with a new term life cover product). In this instance a level commission option is preferred. Consideration must be given to the following – has cover been replaced more than once? Who prompted the review – adviser or client? Were there any other conflicts evident during the advice engagement i.e. campaigns, incentives, rewards?

  • Where a client is new to MTG but their existing financial product is less than 3 years old a level commission option is preferred when recommending a replacement product

  • Where a client is new to MTG but has held their existing financial product for more than 3 years then remuneration arrangements are at the adviser’s discretion to select (i.e., level, discounted or standard commissions are acceptable)

  • For exceptions to these guidelines or if in doubt about whether a conflict might arise (real or perceived) please discuss with a suitable SMT member in the first instance.

 

1.5 When recommending a replacement product

Your recommendation must specify the reasons for replacement, and supporting rationale in a way that helps our clients make an informed decision. Your written advice must detail to the client any risks with implementing the recommended products.

Replacement advice will be a specific focus of MTG’s Advice QA reviews.

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Processes Rupert Gough Processes Rupert Gough

6 Stages of the Risk and Investment Advice Process

CPD Point Available For This Section

Stage 1 – Establish & Define the Client Relationship

During this stage, you should be establishing the scope of your advice with the client. It should be clear that the client understands what is and is not covered by the advice you will give and what the implications are.

Evidence must include:

  • Provide Disclosure Document to client, sign and email to admin support, explain how they can complain and how you are paid

  • Provide Scope of Service Document to client, sign and email to admin support, in this document it must be clear any limitations to the service you a providing

  • Email or text evidence of conversations with client regarding meeting days, time and outcome use Debrief form (Client Interaction Form)

Stage 2 – Gather Data

During this stage, you should be gathering data and defining clear goals for your client. Goals should be expressed using the “SMART” acronym: specific, measurable, achievable, realistic, and time-bound. Use the One Page Plan or Fact Find document that is your preferred method of collection.

Evidence must include:

  • The Scope of Service document should be referred to in order to outline what will be analysed and what will not be

  • Establish the clients Goals, priorities and objectives – include a timeline

  • Establish client’s current financial position and personal situation

  • Collect proof of identification (Drivers Licence, Passport)

  • Establish a risk profile – remember they are different depending on

    • Insurance Risk Profile

    • Investment Risk Profile

    • Use the relevant online tools

  • Gather all existing client information; current insurance (products, amounts, providers) savings and KiwiSaver information

  • Any time you email or call the client to collect information – complete a Debrief form (Client Interaction Form)

  • An email confirming the Fact Find with the client 

Stage 3 – Analyse and Evaluate

During this stage, you should ensure that the client file contains enough evidence to show what research has been undertaken in giving the advice.  All of the evidence should be saved under the CRM Client name, an adviser can email the admin support staff to ensure this is completed.  Do not rely on ‘adviser thoughts’ – provide proof you work through options.

Evidence must include:

  • A note stating any documented assumptions that were made – repeat current situation, goals and needs, limitations

  • Document of independent research reports

  • Attaching a copy of the any reports or quotes to your background notes to support the recommendation you arrive at; this is the beginning of the Statement of Advice – you can use the SOA as a draft to work through decisions 

Stage 4 – Recommendation and Presentation

During this stage, you should be presenting the client with a recommendation that is clear, concise, and effective. The advice should align with the initial scope and be likely to achieve the client’s goals. Enough information should be provided so that a reasonable person could make an informed decision.

Evidence must include:

  • An email to the client containing a Statement of Advice, at this stage provide more detailed information about how you get paid – upfront commission, trail

  • A transcript of a conversation with the client where advice was given if applicable

  • Ensure that the SOA you provide shows in detail comparisons you made and why you reached your recommendation.

  • The SOA must be signed by the client – showing acknowledgement of advice and recommendation and agreement to proceed

  • Use the Debrief form (Client Interaction Form) to document the SOA presentation and confirmation of signing and proceeding 

Stage 5 – Implementation

During this stage, the advice and any variations are agreed to and noted. The process to implement the advice is clearly explained to the client when proceeding.

Evidence must include:

  • Email thread of discussion between adviser and client saved in CRM under client name

  • Note of a phone call/in-person meeting with a client for agreement to proceed Use the Debrief form (Client Interaction Form) to document

  • Ensure you have completed a Replacement of Business Form if required

  • Complete all application forms

  • Explain to the client the process for underwriting or application and any AML check required, if necessary, explain time take to complete this process Use the Debrief form (Client Interaction Form) to document, explain the offer of terms or acceptance if relevant

  • Provide the client with any relevant brochures and all contact details for Maurice Trapp Group

Stage 6 – Monitor and Review

During this stage, you should decide with the client how ongoing monitoring will occur and what the client should expect in the future. It should be clear what the respective responsibilities are between the client and yourself.

Evidence must include:

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