Segregated funds – Industry best practices for meeting clients’ needs

Introduction

The Canadian Life and Health Insurance Association (CLHIA) has published several reference documents that outline advisor best practices when discussing segregated fund products with clients. The CLHIA is a membership-based organization that represents 99% of Canada’s life and health companies. Some of the CLHIA’s objectives are to promote a legislative and regulatory environment favourable to the business of its members, to foster sound and equitable principles in the conduct of the business of its members, and to promote public policies that contribute to the betterment of the Canadian economy and society.   

To assist you in helping your clients achieve their financial goals and meeting regulatory expectations, we’ve compiled some industry best practices from CLHIA when discussing segregated fund products. Areas of focus include the importance of needs-based selling, using “reasons why” letters, and recommending and explaining the appropriate sales charge options.

Needs-based selling

Needs-based recommendations are important in helping clients achieve their investment, financial and retirement objectives. The following are steps that you may want to include in your discussions:

• Fact finding – understand clients’ circumstances and objectives, which may include asking:
  • Age and life stage (saving or nearing retirement?).
  • What is their investment risk tolerance? For example, do they prefer conservative investments?
  • Size of the estate; need for estate planning and beneficiary designations.
  • Specific concerns for the future.
  • Are they a business owner or professional (looking for potential creditor protection)?
• Needs-assessment – include questions such as:
  • If nearing retirement, when will they need income?
  • Is there a spouse or family to protect? – consider appropriate beneficiary designations.
  • Overall liquidity needs – could there be unexpected expenses?
  • Is there a need for tax efficiency?
  • Is there a need for capital preservation?
  • Are they comfort with market risk – are guarantees needed?
• Product recommendation and advice – should be based on the information gathered, including:
  • Discussion with clients to explain recommendations.
  • Discuss fees and investment options available.
  • Direct clients to the applicable information folder, contract and fund facts.
     

‘Reasons why’ letter

A “reasons why” letter should be provided to clients to summarize and confirm details of the sale. The following are some points that may be included:

• Clear explanation about product clients purchased and what needs/objectives they address.
• If the recommendation does not meet all clients’ needs, or if there is a discrepancy, explain why.
• Outline all fees associated with the purchase.

The “reasons why” letter provides a description for clients of the rationale for why you suggested the product, investments and sales charge options. Review the description of the elements of a “reasons why” letter, and see the Segregated Fund recommendation fully implemented – with Fee discussion – income planning scenario, under the “Wealth” section.

For information related to industry best practices, refer to the CLHIA website at clhia.ca.