There are many different products and services in insurance of persons, group insurance of persons, financial planning, mutual funds and scholarship plans, and they can be complex. They require thorough, in-depth analysis before being offered to consumers. An advisor offering these financial products or services works in a specialized field, which requires extensive knowledge. They work in a market where products and services are becoming more numerous and more complicated, while consumers are becoming more and more informed and want to be properly advised. The advisor plays a front-line role, and even more so as their clients rely on them to guide them with their personal finances. This is why they are required to fully understand the financial products and services they recommend and to fulfil other related obligations.
The advisor must ensure they understand the features of the products and services they recommend so they can help clients acquire what suits their situation and explain the product to them in a way they can understand.
The advisor must first have certification that allows them to offer such financial products and services. But this authorization is not enough, because they must also have the necessary competence to do so.
They might therefore be authorized to work in a field without being able to offer all financial products and services with their concepts and strategies, because some of their features require knowledge that they don’t have.
And if the advisor has multiple certificates but rarely practises in a certain field, they increase their risk of not being familiar with the associated products and services because they are much less up-to-date with the latest developments in the market, financial products and services available and their features, common practices, and changes in legislation.
The more complex the client’s situation, the more competence the advisor must have. They must master specialized information, which will reflect in their explanations and advice.
If confronted with a complex situation, product, service, or strategy for which they do not have the required expertise, the advisor risks overstepping the limits of their competence, in particular regarding business strategies, estate planning, and taxes.
If the advisor is not sufficiently competent in a field or if they do not have the certification or all the necessary means to take on or continue a mandate, they must obtain help or the necessary competence by consulting specialists in this field and documents regularly published by financial product and service providers, or by attending training offered in this field by insurers, dealers, and fund managers. If they cannot do so, they should refuse this mandate or refer their client to a different professional who is familiar with the product.
They must remember that the rules that apply to financial products and services can be very complicated and are subject to change, especially when it comes to taxes. The advisor must therefore be careful and ensure the accuracy of the information that they provide to their client on this topic.
An advisor who wants to specialize in a specific field or with a niche clientele must invest the necessary time and effort to acquire the required competence. They can also surround themselves with competent colleagues with various complementary expertise, or create strategic alliances with specialized advisors, such as through bilateral commission-sharing agreements in exchange for expertise.
As for an advisor at the beginning of their career, it would be wise for them to consult an experienced advisor who could serve as their mentor and help them with their knowledge and experience.
Duty to inform
The duty to inform is closely linked to knowledge of a financial product or service. Throughout the mandate assigned to them, the advisor must provide the client with all the information necessary to understand the products and services they offer. The scope of the duty to inform can vary depending on certain factors for example:
- The client’s experience.
- The client’s level of financial knowledge.
- The degree of trust a client has in their advisor.
- The latitude the client gives the advisor to carry out their mandate.
The less knowledge a client has about financial concepts, the more thorough and detailed the information provided by the advisor must be, and the more crucial it will be for this client, it should then be clear, concise, and organized. The more degree of trust and latitude given to the advisor, the greater the scope of the advisor’s duty to inform. This obligation is not limited to explaining the recommended financial product or service. The advisor must also ensure that the client has fully understood their explanations.
Presenting the financial products and services they offer is an opportunity for the advisor to demonstrate their professionalism and increase their credibility with the client by demonstrating their serious approach. They must:
- Ensure the accuracy of the information to be provided on a financial product or service
- Provide objective, factual, and complete information
- Explain the specificities of a financial product or service, such as coverage or exclusions
- Place the same emphasis on explaining the advantages and disadvantages of the proposed financial product or service
- Avoid making statements or representations, by any means whatsoever, that are incomplete, false, misleading, or that may mislead the client regarding a financial product or service
- Provide adequate explanations about the content of the prospectus on the financial product
- Correctly explain the information on fees associated with the financial product or service
- Explain the risks associated with a transaction for a financial product or service, or the consequences of a withdrawal
- Provide information about the state of the client’s investments
If the advisor uses past results (in the form of data or illustrations) to demonstrate financial products’ performance to their client, they must do so while showing their changes over long periods, and remind the client that past returns are not guarantees of future returns. Further, relying on official information on a financial product, such as a prospectus, information booklet, or Fund overview may help the advisor fulfil their duty to inform and help the client compare various indicators.
When offering a financial product or service to a client, the advisor must adhere to the following requirements so that they can make recommendations that are adapted to this client’s needs:
- Know their client and understand their specific need
- Know a sufficiently wide range of financial products or services in their field
- Be able to distinguish between the features of the various financial products or services available
- Have the required certification to sell the financial product or service offered
- Fully understand the financial product or service offered
- Provide necessary explanations for the client to understand