Write down the reasoning behind a recommendation so that someone who was not in the room can follow it.
Wei Ling is writing up her recommendation for Hafiz and Nadia, a married couple with a new baby daughter and a new mortgage. The fact-find and needs analysis are done, and what she writes next is what anyone checking her advice will judge it by.
A rationale is the written reasoning that shows why a product, at a given amount, suits the client. It is set out as need, product and reason, followed by the alternatives considered and the affordability figures.
Imagine someone opening this file two years from now with about twenty minutes to review it. They have never met Hafiz or Nadia and they read only the fact-find, the needs analysis and the recommendation form. The question they bring is whether the file shows why this product, at this amount, was right for these people. Anything you remember from the meeting but did not write down is invisible to them.
Lesson 1.1, "Financial advice is a regulated act, not a sales pitch", explains the reasonable basis requirement. You meet that requirement during the meeting, but other people can only see that you met it through what you wrote afterwards.
Write this part in the same order every time: the need first, then the product, then the reason the product meets the need. Opening with the need anchors the recommendation in the fact-find. When a rationale opens with the product, it tends to read like a brochure with the client's name added, and a reviewer reading it cold has no way to tell whether the need came first.
Wei Ling starts with the need the couple ranked highest. If Hafiz dies or becomes permanently unable to work, Nadia wants to keep the flat and cover the household for about ten years. Wei Ling quotes her directly: "If something happened to Hafiz, I couldn't keep the flat." She also records the cover they already have, which is Hafiz's group term life through work. That policy ends if he leaves the job.
The product has to be named precisely, with the sum assured and the term. Wei Ling recommends term life with total and permanent disability cover. The sum assured clears the outstanding mortgage plus ten years of the household shortfall the couple calculated, and the term runs until their daughter is 25 (example figures).
The reason should tie particular features of the product to particular parts of the need. Wei Ling notes that the cover is personal to Hafiz and continues if he changes jobs, which answers the gap left by the group policy.
When a reviewer finds one product and no alternatives in a file, they cannot tell whether anything was compared, and they will usually assume nothing was. Name the realistic alternatives and give a reason for each one you rejected. Doing nothing is always one of them and is sometimes the right answer. When it isn't, a sentence on why it was ruled out supports the rest of your reasoning.
Wei Ling records three:
Whole life for the same sum assured, set aside because the premium is several times higher, the couple's surplus could not carry it alongside their education goal, and the need is for a fixed period. Relying on group cover alone, set aside because it ends if Hafiz leaves his employer and it is lower than the mortgage. Doing nothing for now, set aside because the need is current: there is a new mortgage and a baby, and Nadia ranked this need first.
Take the affordability figures straight from the fact-find cash flow and write down three numbers: the monthly surplus, the premium or investment amount, and what is left. With the figures on the page, "it is affordable" becomes something a reader can check for themselves.
Hafiz and Nadia take home S$9,400 a month and spend S$7,100 a month, so their surplus is S$9,400 - S$7,100 = S$2,300 a month. The recommended premiums for both of them total S$200 a month, about 9 percent of the surplus, which leaves S$2,100. Wei Ling's example quote for whole life is S$650 a month. That would use about 28 percent of the surplus and leave S$1,650 before any education saving starts, and putting it in the file backs up her reason for setting whole life aside.
If a client declines to share their spending, say so in the affordability section and explain how you kept the amount cautious. If the premium uses a large share of the surplus, record why the client still chose it and note that they understood how many years the commitment runs.
The most important check comes last. Read the rationale against the entire fact-find, including the parts you did not quote, and ask yourself whether you left out anything the client said because it would weaken your case. A client may have said their job is uncertain while the rationale treats their income as stable. They may have asked for money they can reach easily while the product locks it up for ten years. Or they may have ranked a different need first.
On her reread, Wei Ling sees that Nadia said she might stop work for one year after the baby, yet the affordability figures assumed both incomes. She reruns the numbers on Hafiz's income alone, finds the premium is still manageable, and adds a sentence to the file recording this. Had the premium not been manageable, she would have reduced the cover or the term and explained the trade-off to the couple.
When the reasoning only holds up because something was left out, change the recommendation itself. Rewording the rationale around the gap leaves the problem in place. When a rerun confirms the recommendation still works, write that down too.
A good rationale is short, specific and set out in order. It quotes the client where that helps and uses the client's own numbers, so it could only belong to that client's file.
In the activity below, you write one for a practice case with all four parts in it: need, product and reason; the alternatives set aside; affordability; and your check against the whole fact-find.
Take a practice case and write the rationale for your recommendation: the need, the product, the alternatives you considered and whether the client can afford it.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).