2. Serving Clients Through Needs-Based Sales Practices
Insurance products help a client protect themselves against risks that could negatively impact their wellbeing.
Client’s base their purchase decisions on the advice that they receive from their financial advisors.
The CLHIA recommends an approach to making suitable sales composed of six supporting elements.
A new element has been added.
The new 6th step involves advisors sending their clients a brief message. This note is called a “Reason Why” letter, and as the name suggests, it summarizes the “Reason Why” an advisor has recommended a product and the course of action the client has decided to take.
Notes:
1. To qualify for continuing education (CE) credits,
this course must be administered by an approved
instructor.
2. This course may be offered by multiple providers.
You may only earn CE credits for this course once.

3. Background
In Spring of 2006, the Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulators Organization (CISRO) endorsed three principles for managing conflicts of interest that might arise when selling life and health insurance products. These are that the interests of the consumer must be placed ahead of those of the advisor, actual and potential conflicts of interest that must be disclosed, and that the recommended product must be suitable to the needs of the consumer. The recommended Canadian Life and Health Insurance Association [CLHIA] process for making a suitable sale based on a client’s needs is outlined in the reference document “The Approach” [explained in this presentation].

4. Background (con’t)
Given the global focus on fostering a consumer-focused culture in the life insurance sector the CLHIA established a task force to review the distribution of individual insurance products. In 2016 the CLHIA released a public policy paper entitled “Insurance Distribution in Canada: Promoting a Customer-Focused System” outlining the task force’s recommendations. One of these recommendations was to provide clients with a summary of the reason why an advisor recommended a particular product. In response, the CLHIA has added sending a “reason why letter” as an new element to their recommended approach to needs-based selling.

5. Needs-Based Sales Practices – Promoting a Customer-Focused System
Maintaining a strong customer focus and having processes and procedures that protect customers have long been fundamental underpinnings of insurance legislation, marketplace regulation and the life and health insurance industry in Canada. More recently, the concept has emerged as a central tenet in the Insurance Core Principles (ICP) of the International Association of Insurance Supervisors.

6. Needs-Based Sales Practices – Promoting a Customer-Focused System
Conducting a needs-analysis prior to making a recommendation, and providing a copy of this information and a brief and understandable description of the recommended insurance product and how it meets the customers needs is an essential component of treating customers fairly.
Providing customers with clear information, before, during and after the point-of-sale, reduces the risk of sales which are not appropriate to the customers needs’ and helps advisors manage customer expectations and deal with customer complaints and disputes in a fair manner.

7. Key Messages
Needs-based sales practices are part of a customer focused approach to insurance distribution. They are an industry expectation, and a regulatory expectation and requirement in some jurisdictions.
Needs-based selling includes conducting a needs analysis and providing a “reason-why” letter with every sale.
Insurers and MGAs should include needs-based sales practices in their training programs.
Insurers’ reviews will incorporate checking for evidence of needs-base analysis and “reason-why” letters within the next 12 months.

8. “The Approach”
“The Approach: Serving the Client Through Need-Based Sales Practices” outlines the process for making a suitable sale.
Updates to “the Approach”:
Principle and Supporting Elements
Q&A’s
An appendix has been added
“The Approach: Serving the Client Through Need-Based Sales Practices” is the main reference document from the Canadian Life and Health Insurance Associations (CLHIA) that outlines the steps that an advisor should take to ensure that they make suitable sales.
It was released in November, 2016, by the CLHIA, after consultation with Advocis, CAILBA and IFB.
This document is available on the association’s website, and has been updated to include the practice of providing clients with a reason why letter.
Update include:
The section entitled “Principle and Supporting Elements”
New Q&As
And an appendix has been added with examples of what “reason why” letters may look like in different circumstances

9. Sales Suitability Supporting Elements: Client Expectations Disclosure
Fact Finding
Needs Assessment
Advise and Recommend
“Reason Why” letter
The approach is based on the principle that “the recommended product must be suitable to the needs of the client”. A suitable sale is explained in “the approach” as being composed of six elements. It is not a single action but rather processes that should be followed to support the distribution of products that will best help clients.
The use of a “reason-why” letter is a new step in the process that will become final element of a suitable sale.
These elements include an advisor setting client expectations about the type of advice they are able to provide to their clients,
and disclosing information about the products provided, the companies they represent, and any conflicts of interests, or situations that could be perceived as a conflict of interest.
However, to advise a client on what product is best for them, advisors need to gather facts about the client’s insurable interest
so that they can determined a client’s needs based on their assessment [...]
and provide both advice and product recommendations
The “reason why” letter is the final element of a suitable sale that summarizes each of these steps. It is a simply written, brief client facing communication that makes the connection between the advice that the advisor has given, their analysis of their client’s needs, and the direction they have received from their client.

10. Client Expectations
The advisor and client should have a common understanding about the services that the client expects in the immediate transaction and ongoing relationship
Advisors should confirm:
If advice and recommendations are to be provided?
Have advisory fees been disclosed?
What level of service will be provided?
The client needs to understand what services their financial service advisor is going to provide them with.
Setting client expectations is an important step so that the clients do not assume that their advisor is providing services for them when they are not. Without this clarification advisors may unknowingly have clients expecting service or advice.
Clarify with your clients:
Whether or not they are seeking advice and product recommendations, or if an order is being placed?
If advisory fees have been disclosed?
What level of service will be provided?
As a best practice, advisors should document the expectations that they have set with their clients.

11. Advisor Disclosure Written advisor disclosure should include:
License and Jurisdiction
Company (ies) that the advisor represents
Nature of relationship with company (ies) represented
How the advisor is compensated
If the advisor is eligible for additional compensation
Conflicts of Interest
A reminder that the consumers right to ask for more information
One of main elements of a suitable sale is the disclosure that an advisor provides to the client. Clients need both information about the products that they are purchasing, and who they are making their purchase from.
This is where the client receives the information that they need to both make an informed decision about their purchases, and to evaluate the objectivity of the advice that they receive from their advisors. Disclosure should be provided to clients in writing, and be signed by both the client and the advisor.
The “CLHIA Reference Document: Advisor Disclosure” has been updated in A more detailed review is included in another slide deck.
The main components are: (1) License and Jurisdiction (2) Company (ies) that the advisor represents (3) Nature of relationship with company (ies) represented (4) How the advisor is compensation (5) If the advisor is eligible for additional compensation (6) Conflicts of Interest (7) the consumer’s right to ask for more information

12. Advice & Recommendation
Needs Based Selling
Fact Find
Needs
Analysis
Advice & Recommendation
In order for an advisor to make a recommendation to a client they first need to gather facts and determine if the client needs insurance. The amount and type of information gathered will depend on a number of factors including the nature of the services to be provided, the complexity of the client’s circumstances, and how forthcoming the client is.
If there is an insurable need the advisor can then advise on a course of action and recommend products that would help their clients.
As a best practice, advisors should document information that is gathered during the fact find, what needs they have identified, what advice they gave, and the products that they recommended.
The rationale, which would include a summary of facts and needs should be provided to clients in writing as part of the “reason-why” letter.

13. Sending a Reason Why Letter
A reason why letter is a summary of the transaction being completed, a summary of the advice being given, and the rationale for why a particular recommendation was made. It is the final step in making a suitable sale.

14. Purpose of a Reason Why Letter
For the Client:
Check accuracy
Review that the product meets their needs
Review any gaps in coverage
Review the reason for the advisors recommendation
Contact their advisor if something is incorrect or forgotten
Documentation about why a particular product was purchased
For the Advisor:
Confirm Facts
Verify the direction received from the client
Identify needs that the product meets and needs left uninsured
Document that the sale is suitable
Substantiate the client’s understanding of the sale
The purpose of the reason why letter is to be a final check by the advisor that the sale is suitable to the clients needs. For the client it is a condensed written version of the rationale for their purchase.
For the advisor it a final check to:
Confirm the facts;
Verify the direction received from the client;
Indentify the need that the product meets, and needs that are left uninsured;
Document that a suitable sale was made;
and, substantiate the client's understanding
For the client this letter:
is an opportunity to check that the transaction is what they want
review that the insurance product meets their needs
review any gaps an advisor has identified in their insurance coverage
review the advisors reason for the recommendation
it is also a reminder to contact the advisor if something is incorrect or forgotten
and lastly, this documentation serves as a reminder to the client about why a particular product was purchased

15. Content Each reason why letter should identify the:
Product being purchased
Type of insurance, the carrier, and brand name
Key facts
Needs and gaps in coverage identified
Plans to follow-up on unmet needs
Discretionary fee choices
Overall, each reason why letter is meant to be brief summary of the transaction with a focus on understandability.
The letter should:
Identify what insurance product is being purchased
The type of insurance, the carrier, and brand-name
The key facts that have lead to the advisor making their recommendation
What specific needs are being addressed, and any needs that the client has decided to not insure against...
When providing this explanation include the specific amount of coverage purchased and the value of any coverage the client still needs
A plan to follow-up on unmet needs should also be incorporated into the letter
If an IVIC was purchased the discretionary fee choices selected should be included.
Advisors that already send letters summarizing the circumstance around a transaction don’t need to change the letters if the required content is included. If a Life Insurance Replacement Disclosure (LIRD) has already been sent, an additional reason why letter is unneeded.

16. Delivery Send a “reason why” letter:
No later than the date he or she receives the policy
Via if the client consents
After each transaction
* Always retain a copy of the letter in the client file
* Clients should also be encouraged to keep copies of these letters for their own purposes
The letter should be sent to the client before the client receives the policy.
These letters can be sent via , but only with the clients consent.
A reason why letter should always be sent to confirm that the advisor and the client understand each other regarding the transaction, even if the advisor was just taking an order from the client.
A draft of should be kept in the client’s file.
This extra layer of confirmation protects the client, and the advisor, by reinforcing sales suitability.

17. Structuring a Letter Suggested structure: Recommendation
Summary of facts and needs
Amount of coverage & gaps in coverage
Suitability of fee structure [IVIC only]
A call to action
The length and detail of the letter will depend on the type of transaction.
The following slides provide different examples of what a reason why letter could look like.
Each letter should be less than a page in length, and follow a similar structure:
They each start with what the recommendation is
A summary of facts and needs that support the recommendation
Then describe the amount of coverage and any unmet needs
Where an IVIC is sold there is a paragraph that describes the suitability of the fee structure
And each example ends with a reminder for the client to contact the advisor if there are any inaccuracies
Letters do not necessarily need to follow this structure; however, a letter has to have content that covers each of these topics.

18. Writing the Letter
The next several slide provide practical examples outlining how to go about writing a reason why letter?
These examples are structured as a Q&A.
Each example in this presentation can be found in the appendix to “the Approach’s” available on the CLHIA website.

19. Questions?
Do I need a reason why letter if the client plans to fully implement my advice?
Do I need to restate all the facts and needs Identified?
What level of detail is required regarding the amount of coverage purchased?

20. Example 1: Recommendations Fully Implemented
I am recommending that you buy a ten year renewable term life insurance policy. The policy is called [name of policy] and it is offered by [name of insurer].
When we met, you indicated that you and your husband are both young and healthy, you are expecting your first child and just bought a house. You said you are the sole income earner in the family want an inexpensive option to pay off the mortgage if you die.
This policy meets your needs by providing the coverage you want ($250,000) in the least expensive way. You could extend the coverage with a longer term but this is more expensive. A ten year renewable policy means the insurer will continue the coverage for ten years provided you pay the premium each year.
If any of this information about you or your needs is not correct, please let me know right away. If you have any questions about the policy or why I am recommending it, don't hesitate to ask me now or at any time in the future. You should also keep this letter with your personal papers as a reminder of why you have the policy.
Do I need a reason why letter if the client plans to take my advice?
The first sample is one where the advisor has decided to fully implement the recommendations of the advisor. It follows the basic structure outlined on the previous slide: recommendation, analysis, how the needs were met, and an invitation for the client to review the transaction and contact the advisor if something is inaccurate.
Even though there is not a need to confirm that the client is not aware of an uninsured risk it is a good best practice to summarize why a particular recommendation has been made.
Do I need to restate all the facts and needs identified?
Every piece of information on an application does not need to be restated. However, the main facts that your advice is based on should be included in the letter. These are the facts that support the advice given. As well, the needs you have identified should be stated so that this letter can help to confirm that no needs have been overlooked.
What level of detail is required about the product purchased when all identified insurance needs are met?
As a best practice it is useful to state the amount of coverage that is being purchased as a final written notification to the client. This allows further consideration of whether sufficient coverage is in place.

21. Questions?
How do I describe situations were my client is not taking my advice?
Should gaps in coverage be identified?
Is it appropriate to include plans to review unmet coverage needs at a later date?

22. Scenario 2: Recommendations Partially Implemented
I am recommending that you buy a universal life policy and critical illness insurance. The universal life policy is called [name of policy] and it is offered by [name of insurer]. The critical illness policy is called [name of policy] and it is offered by [name of insurer]. When we met, you indicated that you are quite well off and are primarily concerned about building up an inheritance for your children in a tax efficient manner. You also indicated you are healthy but would like some additional financial security if you become sick and can't work. We have discussed various ways you can use the universal life policy. For now, the most effective way of meeting your needs is for you to simply pay the premiums. You also indicated that the critical illness insurance is not an immediate priority so you will think about it some more. About this time next year, we will discuss the critical illness issue. If any of this information about you or your needs is not correct, please let me know right away. If you have any questions about the policy or why I am recommending it, don't hesitate to ask me now or at any time in the future. You should also keep this letter with your personal papers as a reminder of why you have the policy.
How do I describe situations were my client is not taking my advice? Should I identify gaps in coverage?
Scenario 2 is an example of a client that has partially implemented the recommendation of their advisor. It is important to identify the direction that you have received from the client, your advice, and any differences. This way the letter helps to substantiate that the client is aware that they have an uninsured risk.
Even if there is a gap, an advisor should still identify what needs the purchase is meeting, what needs are being met, and the main facts one which the advisor bases their assessment.
In the second paragraph the advisor identifies that the client has a need for a life insurance product to build up an inheritance for his children, and an additional need for critical illness insurance. The Third paragraph identifies what needs the client’s purchase meets, and where there is a gap in coverage. The client has decided not to purchase the critical illness product.
Is it appropriate to include plans to review unmet coverage needs at a later date?
If the advisor plans to discuss unmet needs that have been identified it is a good practice to include this in the letter. It can serve as a reminder to both the advisor and the client that there is a uninsured risk that should be reviewed.
In the example a plan is made to discuss this gap in coverage next year.

23. Questions?
Can I use a standard reason why letter for each transaction?
What should I say about the choice of fee options (IVICs)?
Do I still need to summarize my fact find, needs analysis, and recommendation when I sell segregated funds?

24. Scenario 3: Wealth Product with Fee Options
As we discussed, I have sent in the application for an individual variable insurance contract. The policy is called [name of policy] and it is offered by [name of insurer]. When we met, you indicated that you wanted to invest in the equity market but did not feel comfortable with the risk that goes with investing in mutual funds. Instead, you said, you wanted put your money in a segregated fund. The IVIC you bought has the basic death and maturity guarantees. This means the most you can lose is 25% of your investment. This guarantee applies if you keep your money invested in the contract until it matures or you die. As we discussed, if you need to withdraw money before then and the market value is down, the value of your investment will be down by the same amount. You put your money in a Canadian equity fund. You can invest additional amounts in this fund at any time. You can also switch your investment to another fund in the contract or invest additional amounts in a different fund. This contract has different fee options. You selected the no-load option because you wanted all your money invested up front and you thought you might want to withdraw some of your money while DSCs still applied. If any of this information about you or your needs is not correct, please let me know right away. If you have any questions about the policy or your investments, don't hesitate to ask me now or at any time in the future. You should also keep this letter with your personal papers as a reminder of why you have the policy.
Can I use a standard reason why letter for each transaction?
Reason why letters will appear to be similarly structured. However, the rationales that will be included will depend on the product purchased. As well, the facts and needs that the advice is based on will be different with each client.
What should I say about the choice of fee options (IVICs)?
The third scenario is an example of where a client has purchased a IVIC product with different fee options. A reason why letter should summarize all advice given, and decisions made by the client. The fifth paragraph summarizes why a particular fee option was chosen.
This paragraph reads: “This contract has different fee options. You selected the no-load option because you wanted all your money invested up front, and you thought you might want two withdraw some of your money while DSCs still applied.”
Do I still need to summarize my fact find, needs analysis, and recommendations when I sell segregated funds?
In addition to summarizing fee options, the decisions of the client, advice, needs and facts should all be need to be summarized.

25. Questions?
Is a reason why letter necessary if the client knows what they want and is essentially placing an order?
Do I still summarize facts and needs if the client states that they do not require advice?

26. Scenario 4: Order Execution
On your request, I have submitted an application for [name of policy] with [name of insurer]. This 20-year term policy for $500,000 corresponds to the term and amount of your mortgage. As your bank requires, the policy is collaterally assigned to [name of bank]. If you die and the death benefit is greater than the amount owing on your mortgage, the difference will go to the beneficiary you named. If any of this information about you or your needs is not correct, please let me know right away. If you have any questions about the policy, don't hesitate to ask me now or at any time in the future. You should also keep this letter with your personal papers as a reminder of why you have the policy.
Is a reason why letter necessary if the client knows what they want and is essentially placing an order?
The last example is a scenario where the client is making a specific request of the advisor. The advisor is essentially acting as an order taker. This letter will be much shorter. However, it will be structurally similar to other examples provided in terms of the topics covered [direction from the clients, advice given, facts found and needs identified].
Do I still summarize facts and needs if the client states that they do not require advice?
You can see that it clearly identifies in the first paragraph that the advisor is acting only on the instructions of the client, and it then goes on to identify why the client is in need of this type of coverage.

27. Conclusion A properly constructed reason why letter:
Confirms and documents that a suitable sale has been made
Reminds the client about which of their needs they have insured and where they may still need insurance
Summarizes the facts and details surround a transaction in a manner that is easy for a client to understand
In conclusion the use of a reason-why letter supports efforts to engage in needs based selling.
Sending a reason why letter helps to:
Confirm and document that a suitable sale has been made
Remind the client about which of their needs they have insured, and where they may still need insurance
And summarize the facts and details that surround a transaction in a manner that is easy for a client to understand
In closing, it completes the process of completing a suitable sale.

28. More Information
Canadian Life and Health Association Website: Find the CLHIA Reference Document: “THE APPROACH: SERVING THE CLIENT THROUGH NEEDS-BASED SALES PRACTICES” at: