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How to benefit from the DNS

It was good to see that January 14 came and went and the world didn’t end – the relief felt was similar to that of the millennium bug when it failed to mat-erialise. Of course, with something like regulation, D-Day isn’t the end of the story. Now’s the time when we have to start changing the way we work and real-ise where the potential regulation minefields are.

The FSA’s reason for regulation is to protect the consumer. But it has also reconfirmed to us the level of service we should be giving to the consumer. It’s clear the FSA is going to get tough if the consumer has cause to complain.

The majority of change that regulation brings falls to the adviser as you need to adopt a new sales pro-cess, be clearer about your role and charges and make sure that you’ve documented every part of the advice process in case you need to defend yourself against a complaint.

In the long run, we may find that many of the changes will bring longterm benefits. However, we need to make sure we’re aware of the pitfalls which means looking deeper than the published rules.

The Demands and Needs Statement (DNS) – a cross between a fact find and a reasons-why document – must be filled in for each client that receives advice. But the FSA hasn’t provided a template for what the DNS should look like. So it’s up to you to ensure you understand what it means by demands and needs and that you capture the relevant information to show that these have been taken into account.

One rule of thumb would be to capture as much information as possible and record everything you’ve recommended to your client, any outstanding gaps in cover and things your client doesn’t want to proceed with.

One of the great benefits of the DNS is that it can be a great sales tool. Not only will it detail all the information you’ve captured on your client, done well it will also highlight any gaps in their cover. This makes it a perfect tool for carrying out a review.

Another plus point to the DNS is that you have to give your client a copy for their records. It might be worth including a section which details the circumstances under which they might want to revisit their level or type of cover such as getting married, starting a family, moving house or getting a pay rise. The DNS can be a great tool to build long-lasting relationships with your clients.

An area of the regulations that some advisers might be less prepared for are the new risks that are not explicitly set out in the rulebook. One of these is the extended power of the Financial Ombudsman Service (FOS) to include general insurance products. It is becoming more common for people to take action if things go wrong. And the extended powers of the FOS make it much easier to complain and it doesn’t cost anything to do so. Although the FOS has previously dealt with protection complaints against insurers, now it can hold advisers responsible.

A lot of protection complaints relate to the small proportion of claims that are turned down. And the most common reason for this is non-disclosure, so this is an area you need to take particular care about and which is covered under the new regulations.

This isn’t the only area that FOS could order you to compensate your client for. If, for example, one of your clients makes a successful claim on their policy but the amount isn’t enough to cover their financial commitments, you might be accused of not considering all of their financial needs. They could even complain if they contract a critical illness and you hadn’t recommended they take out critical illness insurance.

Another pitfall is whether or not you put your client’s policy in trust. If the family are hit with an extra IHT bill, they might question why the policy wasn’t in an appropriate trust. This risk could be compounded because, when someone dies, there’s usually a lawyer to deal with the estate.

To understand the wider implications of the regulations, it makes sense to read between the lines and think ahead. If you avoid the pitfalls, you might find that the regulations help you to build your business through client reviews and the power of your DNS.

Nick Kirwan is protection marketing director at Scottish Widows

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