In response to the global focus on Fair Treatment of Customers, in 2016 the CLHIA created a task force to develop practices that promote needs-based selling and sales suitability. One of their recommendations to demonstrate sales suitability and fair treatment was that advisors send a post-sale “Reason Why” letter to clients.
All provincial insurance regulators fully support the addition of this element to “The Approach.” The CLHIA and Regulators expect implementation of this practice by insurance companies and their contracted advisors.
What is the purpose of the “Reason Why” letter?
The letter is a brief understandable summary of the client’s stated wishes, the advice provided to the client by the advisor, and the Reason Why the product meets the client’s needs.
The intent of sending a “Reason Why” letter is to support sales suitability, promote increased financial literacy, and help to confirm that an advisor is acting in the interests of a client.
Is this applicable to all provinces?
Yes
When am I expected to implement the Reason Why letter into my practice?
Immediately
Will the insurer, regulator and/or MGA expect to see this document in client files as part of compliance assessments?
Yes
What products does this requirement apply to?
It applies to all Individual Insurance products (Life, Living Benefits/DI, Segregated Funds) and payout annuities.
Does this requirement apply to transactions like fund switches/transfers and additional deposits?
No. Adding money to, or performing a switch to rebalance the portfolio, does not necessarily change the purpose of the program (why it was sold). Where circumstances exist that change the purpose of the program (e.g., RSP to RIF – accumulation to income), a Reason Why letter would be necessary.
Do I need to prepare a formal letter on my letterhead to meet this requirement?
No, the Reason Why can be sent in an email to the client.
Please also consider the sensitivity of specific information and decide if an e-mail is appropriate in the circumstances.
What should my Reason Why letter include?
Identify the product and type of insurance purchased.
Summary of relevant information from the fact find and needs assessment conducted to explain the recommendation.
Where appropriate, note any differences between the recommendation made and the product(s) purchased.
Include the requirement of the client to review and ask questions if any information is unclear or mis-stated.
If the client already knows what they want to purchase, do I need to prepare a Reason Why Letter?
Yes, the client’s request and explanation should be detailed in the letter.
If the client simply requests a specific type and amount of insurance, this should be noted.
When does the letter/email need to be provided to the client?
For life insurance and Living Benefits/DI, no later than policy delivery.
For segregated funds, the letter should be sent as soon as possible after the sale.
Do I need to obtain and keep some form of acknowledgement that my client received my Reason Why letter/email?
Although it is a sound business practice to have acknowledgement by the client of their receipt, this is not a requirement at this time.
You should retain a copy of the letter or email in your client file as you will be required to demonstrate one was issued.
Do I need to provide a separate Reason Why letter where there is a policy replacement?
When replacing a policy, the advisor must provide a written explanation of the advantages and disadvantages of the replacement to the client. Where this written explanation provides the client with these details and includes the general requirements of a Reason Why letter identified above, a separate Reason Why letter would not be required.
