You will be able to write the reasoning behind a recommendation so that someone who was not in the room can follow it.
Picture a reviewer two years from now who has never met Hafiz or Nadia. In front of her are your fact-find, your needs analysis and the recommendation form, and she has maybe twenty minutes to answer one question: does this file show why this product, at this amount, was right for these people? Anything you remember but did not write down is invisible to her.
You meet the reasonable basis requirement from lesson 1.1, Financial advice is a regulated act, not a sales pitch, during the meeting, but the only way anyone else can see that you met it is through what you wrote afterwards. So this lesson is about writing it down well.
Write the reasoning in the same order every time: the need first, then the product, then the reason the product meets that need.
Starting with the need anchors the recommendation in the fact-find. Wei Ling's rationale for Hafiz and Nadia opens: "Top-ranked need from fact-find: if Hafiz dies or becomes permanently unable to work, Nadia wants to be able to keep the flat and cover the household for about ten years. In her words: 'If something happened to Hafiz, I couldn't keep the flat.' Existing cover: Hafiz's group term life through work, which ends if he leaves the job."
Next comes the product, named precisely with its sum assured and term, and after it the reason, which ties specific features to specific parts of the need: "Term life with total and permanent disability cover, sum assured set to clear the outstanding mortgage plus ten years of the household shortfall the couple calculated, term running until their daughter is 25. Cover is personal, so it continues if Hafiz changes jobs."
A rationale written in the other order, product first, tends to read like a brochure with the client's name added. Someone reading it cold cannot tell whether the need came first.
The second part is what you considered and set aside. A reviewer who sees one product and no alternatives has no way of knowing whether you compared anything, and will usually assume you did not.
Name the realistic alternatives and give a reason for each one you rejected. For Hafiz and Nadia, Wei Ling writes: "Considered whole life cover for the same sum assured. Set aside because for this sum assured the premium was several times higher, which the couple's surplus could not carry alongside their education goal, and their need is for a fixed period. Also looked at relying on group cover alone. Set aside because it ends if Hafiz leaves his employer and is lower than the mortgage. Considered doing nothing for now. Set aside because the need is current: they have a new mortgage and a baby, and Nadia ranked this first."
Doing nothing is always an alternative, and sometimes it is the right one. When it is not, a sentence on why gives the rest of your reasoning a firmer footing.
The third part is affordability, and it comes straight from the cash flow in the fact-find. State the client's monthly surplus, the premium or investment amount, and what is left.
In Wei Ling's example figures, the couple take home S$9,400 a month and spend S$7,100, a surplus of S$2,300. The recommended premiums for both of them come to S$200 a month, about 9 percent of the surplus, leaving S$2,100. She also notes the whole life alternative from the example quote, at S$650 a month, would have taken about 28 percent of the surplus and left S$1,650, before their education saving starts. Writing those figures down turns "it is affordable" from an opinion into something a reader can check.
Where the client declined to share spending, say so here and explain how you kept the amount cautious. A premium that takes a large share of the surplus needs a note on why the client still chose it and a record that they understood how many years the commitment runs.
There is one last check, and it is the one that matters most. Read your rationale against the whole fact-find, not just the parts you quoted. Is there anything the client said that you left out because it would weaken the argument?
Maybe the client mentioned their job is uncertain, and the rationale treats their income as stable. They may have said they wanted money they could reach easily, and the product locks it up for ten years. Or they ranked a different need first. Whenever the reasoning only works by leaving something out, writing around it is the wrong fix, and the recommendation itself needs to change.
Wei Ling catches one in her own draft. Nadia had said she might stop work for a year after the baby. Wei Ling's affordability figure used both incomes. She reruns it on Hafiz's income alone, finds the premium is still manageable, and adds a sentence saying so. Had it not been, she would have reduced the cover or the term and explained the trade-off to the couple.
A good rationale is short, specific and in that order: need, product and reason, then alternatives, then affordability. It quotes the client where that helps and uses their numbers, so it could only belong to their file. In the activity below you write one for a practice case with all four parts in it.
Write a recommendation rationale for a practice case covering need, product, alternatives considered and affordability.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).