From 1 January next year, advisers will have to implement requirements under guidance note 16 (GN16), which aims to improve the selling practices of the long-term insurance business, or class-A products, to ensure customers are treated fairly.
Christal, general manager at Old Mutual International in Hong Kong, said the changes within GN16 mean there will be discrepancies between the requirements set out in GN16 and those set out in guidance note 15 (GN15).
GN15 applies to all businesses selling investment-linked assurance schemes (ILAS), otherwise known as class-C products.
“The change under GN16 would filter through to advisors who are selling class A, but ultimately the class-C and class-A market will not be aligned in terms of overall requirements,” Christal said.
“With all players in the same level playing field, this signals a positive move for the industry and clients with better customer outcomes"
This misalignment, he argued, would “create inconsistencies” in the sales process of insurance, the disclosure of product information and the treatment of customers.
Mandatory requirement
One component of GN15 is the Financial Needs Analysis (FNA), which quizzes customers to assess their suitability for insurance products. The FNA has been a mandatory requirement for insurers selling class-C products, or investment-linked assurance schemes (ILAS), since 2009.
However, from 1 January 2016, advisers selling ‘non-linked’ class-A insurance products, including life insurance and annuities, will have to comply with the FNA under GN16.
Natural extension
James Tan, managing director of Friends Provident International in Asia, said broadening the FNA exercise to the life insurance business “is a natural extension from GN15 to ensure customer suitability in purchasing insurance products”.
He said: “Similar to GN15, the implementation of GN16 will see the industry adjust to a new operating field with new rules, and we expect to see more communication clarity that will benefit consumers.
“With all players in the same level playing field, this signals a positive move for the industry and clients with better customer outcomes.”
Refined
Though insurers and advisers welcome the measure and many have already installed the process in their business model, it has been argued the FNA form needs development.
“We feel that the questions asked could be refined,” said David Benskin, director of Hong Kong-based advisory firm Strabens Hall.
“This would allow insurance companies to better assess the suitability of the advice on a more holistic level, especially for clients with complicated asset bases or tax situations.”
Strabens Hall conducts a full factfind and analysis of each client’s situation, therefore going beyond the detail required in the FNA, but Benskin said other firms might struggle.
“Some of the higher-volume insurance brokerage firms will find it more difficult as their focus will naturally be on selling a product, which does not require as much understanding of the client situation,” he said.
Vital tool
Similarly, chief executive of Globaleye in Hong Kong, Edward Harris, said his business already participated in full FNA, adding that it was positive that all IFAs would be required to operate on the same level.
“Completing a full FNA with a potential client and keeping these updated with existing clients is a vital tool in ensuring advice is in the client’s best interest,” he said.
Meanwhile, Convoy Financial Services suggested that for those companies not yet fully immersed in the new sales process, additional costs would likely be incurred.
