CLHIA-ACCAP

5 B: CUSTOMERS ARE PURCHASING PRODUCTS THAT ARE SUITABLE TO THEIR NEEDS, AND UNDERSTAND WHAT THEY HAVE PURCHASED International standards are that advice needs to consider the customer's needs, priorities and circumstances, and explain/document the basis on which the recommendation is made. Understanding customers' needs In Canada, it is common practice for advisors to use a needs-based selling approach and recommend products that are suitable to the customer's needs, but this is only formalized into regulation in Quebec, which requires that an advisor analyze the needs of the customer and provide a copy of the information that has been gathered (often referred to as a needs analysis) whenever advice (a licensed advisor) is involved. It is our view that the Quebec approach should be adopted across the country. A needs analysis demonstrates that the advisor has an understanding of the customer's circumstances and needs before recommending a product to meet those needs. The duty to conduct a needs analysis and keep documentation of it would rest with the advisor, and a copy would be provided to the customer. Audits of advisors, whether they be undertaken by the regulator, insurer or distribution firm, would include looking for evidence of the needs analysis. Recommendation 6: We recommend that all jurisdictions require that the advisor conduct a needs analysis prior to making a recommendation to the customer and provide a copy of this information to the customer before or at the time of policy delivery. Explaining the product and its suitability to the customer In terms of product disclosure made to customers before they make a buying decision, insurers already produce excellent point-of-sale material that meet or exceed industry and regulatory minimum disclosure requirements. For Individual Variable Insurance Contracts, customers receive a Key Facts document that describes the contract and a Fund Facts document that describes the investments within the contract. For life and health insurance products, customers receive material written in clear language that describes the product and any limitations or exclusions. While the needs analysis is a valuable tool in assessing a customer's situation and needs, and in guiding the advisor to make a recommendation that is suitable to those needs, this does not, in and of itself, ensure that the customer understands why the recommended product is suitable to them. It is our view that additional documentation would be helpful. A short (e.g. 1 page) document from the advisor outlining what product was recommended and why, would be useful to customers in confirming their understanding of what they have purchased, its intended objective and how it meets their needs. Recommendation 7: We recommend that all jurisdictions require that advisors provide to the customer, before or at the time of policy delivery, a brief written explanation outlining the product recommendation and why it is appropriate for the customer.

• Cover