In general, when providing advice, advisers must:
- Assess the product's suitability for the client's needs
- Explain the key features and any limitations of the product to the client
- Clearly articulate any limitations on the service being provided
In addition advisers should keep records demonstrating how they have fulfilled the care, diligence and skill requirement in providing advice, and how they have disclosed and managed any conflicts of interest arising from commissions or their remuneration. AFAs also have specific conduct and record-keeping requirements under the Code of Professional Conduct.
Download our excerpt from the FMA relating to care diligence and skill examples.
Insurance advice: Insurance advice should be balanced, provide a clear explanation of both the benefits and the exclusions or limitations of the product’s cover. It should consider the client’s needs and the client’s eligibility for the product.
Payment protection insurance: It is not appropriate to automatically recommend payment protection insurance just because the client has a loan. An adviser needs to consider if the client actually needs this type of cover or whether an existing insurance policy will suffice. If the payment protection insurance is being added to the loan, then the cost of adding the protection insurance should be explained to the client.
Product replacement advice: As a minimum, when providing personalised advice, the adviser should compare the client's existing arrangements with the new recommended product. This means the adviser needs to have knowledge of the terms of the client’s existing product. The comparison needs to be balanced and should be more than stating the new product is cheaper. The benefits and disadvantages of the new product need to be explained. If the adviser is not providing a comparison and is just recommending a new product then it should be explained to the client that no comparison has been made and that there could be adverse consequences as a result of changing the product.
Insurance replacement: When recommending the replacement of an insurance policy, the comparison should include the material differences in the policies that are relevant to the client including any loss of benefits plus the specific adverse consequences of changing policy or provider.
Debt consolidation: When recommending a product change, advisers should compare and advise the client of the total cost of the credit as well as the repayment instalment amount.