Compliance Update: Reason Why Letters

Context is important. Some say it’s everything.

You’ve probably heard about the new industry requirement for Reason Why letters. You might know about the date when the requirement takes effect or about applicability by province and by product. It’s essential that you know these things, but don’t stop short of understanding the context.

 

What’s this all about?

A Reason Why letter is meant to follow a transaction between an advisor and a client, providing a plan language explanation of product recommendations, transactions being completed, and related rationale.

 

Where did these changes come from?

As a part of a task force initiative, the Canadian Life and Health Insurance Association (CLHIA) listed Reason Why letters as a recommendation to encourage needs-based selling. Since then, Reason Why letters have been made a requirement in every Canadian province.

 

What is needs-based selling?

Needs-based selling means that the interests of the client must be placed ahead of those of the advisor; it’s as simple as that.

 

What’s in it for the advisor?

By keeping clients informed, an advisor is able to better manage client expectations and goals. Further, Reason Why letters are likely to strengthen client satisfaction for advisors, as they are a part of a transparent approach that develops trust.

 

We hope that by understanding the context and the underlying motivations for this new requirement, you will see the value of Reason Why letters and how they can enhance your relationships with your clients.

To review more Reason Why letter resources, including sample letters, visit our new Reason Why webpage under the Compliance menu in our Advisor Portal.

If you have questions, please contact your local FHG branch office.