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.