Agents know they need to make their recommendations suitable for all consumers, but especially for seniors. To help them, many companies have provided forms that collect information that allow the agent to document the circumstances of the case and also allow the company to review suitability. Some companies have even provided tools or sales aides to help the agent determine suitability.

However, many agents are unaware of the need to document the basis for their recommendation beyond the required forms. When questions arise about suitability, it is the agent’s documentation that often spells the difference between successfully defending an accusation against the agent or company that a recommendation was unsuitable.

Regulators seem less willing to accept the defense that the client signed the application or a suitability form and, therefore, was fully aware of the suitability of the product he or she purchased. The proliferation of forms and required signatures sometimes creates a reasonable doubt that the consumer knew what he or she was signing. Questions about the basis for the recommendation and whether or not full disclosure was provided are often difficult to answer without supporting documentation.

In some cases, the consumer does not want to disclose information and “opts out” by signing a form to that effect. However, consumers then claim afterward that they never understood what the “opt out” form referred to and that the agent never explained what the form meant.

Agents need to know the minimum standards needed to document the basis for their recommendation if they are to be fully protected from claims that they failed to recommend a suitable product.

What documentation is needed

To be able to answer questions that might arise, agents should have documentation that they not only collected appropriate information, but that they also properly analyzed the information, matched it to the product’s features, benefits, advantages and costs, and disclosed it to the consumer. This documentation should include:

1) The information collected on the consumer’s personal and financial goals, objectives, needs, and the consumer’s financial situation, including other life insurance, annuities, etc. owned by the consumer.

2) The information collected on the consumer’s personal situation, including outstanding personal, family and health issues.

3) Copies of any important client information, such as listings of investments, assets, etc. that were used in reaching a recommendation.

4) The names and responsibilities of any consumer advisors involved in the sales process and copies of information provided by the consumer’s advisors.

5) Information on tax implications that were included in the analysis used to reach a recommendation.

6) The source of any information about product features, benefits, etc. used by the agent in his or her analysis to reach a recommendation.

7) A description of the analysis process–how the consumer’s needs and situation were matched with product features, benefits, etc. If more than one product was considered, then this description should answer the question of why one product was chosen over another.

8) When and how the recommended product’s features, benefits, advantages and costs were shared with the consumer, including the specific sales material shared with the consumer.

9) Any questions the consumer asked or information he or she requested.

10) The consumer’s decision on which product to purchase if more than one was presented.

Some agents collect this information, but they do not maintain it properly in their files. They are not conscious of the process they use and often their documentation is incomplete. The documentation process needs to become conscious. Agents can develop a simple checklist of what needs to be documented and use it during the sale. Some agents include in their checklists reminders about company required suitability forms and product guidelines.

The first place we go when there are accusations about suitability is the agent’s files and documentation. Often it proves to be a dead end and we must search for another basis to defend the agent and company. Sadly, sometimes the lack of information causes a company to settle a case that it should have won and hold the agent accountable.

Dennis Groner, PhD, CLU, ChFC, is a consultant to U.S. and international financial services companies on compliance and market conduct. He can be reached at DenGroner@aol.com