Investment and Long Term Insurance Sales Practice - Thematic Review 2017

Summary

This is the GFSC's 2017 thematic review report on how investment and long term insurance intermediaries are complying with existing sales practice and suitability requirements when advising retail clients. It summarises findings from a sector-wide questionnaire (35 respondents) and onsite visits to five licensees, and sets out areas of good practice and areas requiring improvement.

• Capacity for loss: Many client files reviewed did not properly document or distinguish capacity for loss from attitude to risk; licensees should evidence a documented assessment based on the client's financial circumstances.
• Fees, charges and remuneration: Some licensees failed to clearly disclose how fees, commissions and product costs are funded and whether they are ongoing; clients should be given clear information on all fees and remuneration before services are provided.
• Attitude to risk: Some firms relied solely on profiling tools without checking the result reflects the client's actual risk appetite; firms should use clear, consistent terminology understood by both adviser and client.
• Disclosure of lost benefits on product replacement: 24% of relevant respondents did not disclose details of benefits lost when a product is replaced, which the Commission considers firms should review, particularly for long term insurance.
• Training and competency: 24% of respondents' training and competency schemes were not role specific, raising concerns about ongoing assessment of Financial Adviser competency.
• Churning and switching monitoring: 30% of respondents gather no management information to identify churning or switching, limiting firms' ability to detect abuse or wrongdoing.

The report does not create new rules but reiterates obligations under the Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law 2002, the Protection of Investors (Bailiwick of Guernsey) Law 1987, the Licensees (Conduct of Business) Rules 2016, the Insurance Intermediaries (Conduct of Business) Rules 2014, and the Code of Conduct for Financial Advisers. Licensees are expected to review the findings against their own policies, procedures and controls, with the Commission stating this self-assessment will inform its view of board-level assurance; separate workshops for Financial Advisers and Compliance Officers were also to be arranged.

Key obligations

• Licensees should review their approach to disclosing details of benefits lost when a product is replaced, particularly for long term insurance business
• Licensees should ensure Training and Competency schemes are role specific and enable ongoing assessment of Financial Adviser competency, in line with the Licensees (Conduct of Business) Rules 2016 and Insurance Intermediaries (Conduct of Business) Rules 2014
• Licensees should gather management information capable of identifying churning and/or switching of client products
• Licensees must document a proper capacity for loss assessment based on the client's personal circumstances, assets, liabilities and future needs, distinct from attitude to risk, per the Licensees (Conduct of Business) Rules and Code of Conduct for Financial Advisers
• Licensees must give clients clear information on all potential fees, charges and other remuneration for services before those services are provided
• Firms should use clear and consistent terminology when communicating a client's attitude to risk so both adviser and client share a common understanding
• Licensees should review this thematic paper and implement changes to policies, procedures and controls where required, and be prepared to demonstrate this self-assurance to their board

Applies to

investment intermediary licensees, long term insurance intermediary licensees, Financial Advisers, Authorised Insurance Representatives, licensees conducting controlled investment business