Making Sense of Financial Needs Analysis (FNA)

Many of us would have met with Financial Adviser (FA) representatives¹ – e.g. bank relationship managers, insurance agents or financial planners - who have offered to help us identify how we can reach our financial goals. If you take them up on this offer, one of the first things they will typically do is ask you questions about your personal financial situation and financial objectives. You may have heard your FA representative refer to this as the Financial Needs Analysis (FNA) process, and may be wondering what this is all about.

This article provides answers to some common queries about the FNA, and also highlights key things to consider when dealing with your adviser.

Q1) What is the purpose of a Financial Needs Analysis?

We purchase investment products to meet different needs – whether they are to meet long term goals such as paying for your child’s tertiary education or short term savings plans like saving up for a car or providing financial support for your family in the event you are unable to draw an income.

As part of the FNA process, your FA representative gathers information on your overall financial situation and goals, analyses the information and recommends an investment product that is considered to be suitable for you. You will need to consider the recommendation carefully and assess whether the investment product meets your needs.

Without the information obtained through the FNA process, your FA representative would not be able to assess your financial status nor recommend an investment product to suit your needs and risk profile.

Q2) Is conducting the Financial Needs Analysis process required by law?

Yes, if you want your FA representative to recommend an investment product which is covered under the Financial Advisers Act (FAA), such as unit trusts, life insurance policies, investment-linked insurance policies and structured products. A FA representative, acting on behalf of the FA firm he represents, is required under the FAA to make a recommendation that takes into account your investment objectives, financial situation and any particular needs. The process of obtaining such information is commonly called the FNA.

Q3) What can I expect from the Financial Needs Analysis?

Different financial institutions adopt different processes and documentation to conduct the FNA and your adviser should guide you through the process. However, all FA representatives are required to obtain the following information from you before they can recommend an investment product:

• your financial objectives
•  your risk tolerance
• your employment status
• your financial situation, including assets, liabilities, cash flow and incomes; and
• your current investment portfolio, including any life policy.

If your FA representative makes a recommendation for any life policy, he will also need to obtain information on the number of dependants you have, the extent of financial support required for each dependant and duration of financial support required.

Your FA representative is then required to document all the above information.

Q4) What if I do not want to provide the information to my adviser? Does this mean I cannot purchase an investment product?

You should provide the information to allow the FA representative to recommend a suitable product. If you are not willing or not comfortable to provide certain information, you should check with the adviser on how this will affect the suitability of the recommendation.

Do note that if you do not provide essential information that the FA representative asks for in the FNA, the representative may not be able to give you a recommendation for an investment product, or the recommended investment product may not in fact be suitable for you. If you do not accept the representative’s recommendation and choose to buy a different investment product instead, it is your responsibility to ensure the suitability of the product selected and you will have fewer grounds to make a complaint if you later find that the investment product may not be suitable for you.

Q5) What do you need to do?

Before you appoint and deal with your FA representative

Ask the FA representative to provide you with the following information in writing:
  -the name of the FA firm that he represents;
  -his unique representative number;
  -the type of financial advisory service he is authorized to provide.

Find out as much as you can about the FA firm such as its track record, as well as the qualifications of the representative¹.

Before you meet your FA representative to discuss your financial needs, do prepare for the FNA discussion in advance. Use the checklist below to help you:

1.Think about your financial goals. For example, do you want to:

• Save for your children’s tertiary education?
• Protect your income in case you fall ill?
• Save for your retirement?

2. Consider how much risk you are prepared to and can afford to take if you are planning to save or invest. For  example, do consider the following:

• Is it important to you that you do not risk losing any of the money you put into the product?
• To what extent can you afford to lose some or all of the money you put into the product even if the product offers potentially higher returns?
• When would you need to use the money that you are planning to save or invest?

3. Prepare the personal information that your FA representative will ask you for. For example:

• Your income, borrowings and savings;
• What insurance policies or other financial products that you already have; and
• Details of your partner, children and any other dependants.

During the discussion with your FA representative

It is important that you are clear on what is discussed during your meeting. Our checklist will help you with this.

1. Take notes of what is said at the meeting so you do not have to rely on your memory later.
2. Ask questions about anything you do not understand.
3. Ask for your FA representative’s recommendation in writing and consider it carefully. Request that the recommendation states clearly the various reasons why the product recommended is suitable for you. This will help minimise any misunderstanding between you and your FA representative. It will be helpful when you review the recommendation and consider whether to take up the product recommended to you. It will also be a useful reference when you review your financial plans in the future.
4. Ask your FA representative to explain what you can do if you subsequently realise that you are not satisfied with the product. Ask if there is a free-look or cancellation period which allows you to cancel the purchase of the product within a specified time period. If so, find out what is the time period within which you can cancel your purchase. Ask your FA representative to explain the procedures for doing so, whether there are any costs involved, and any other terms and conditions.
5. Do not be pressured into signing up for anything on the spot. Do not sign anything unless you have read it and understood it.

Your FA representative will assess your financial situation and recommend you products based on the information you provide. So do provide your FA representative with full and accurate information.

After the discussion with your FA representative

1. Check and keep the records

Check that the documents accurately reflect your financial situation.
Always ask for a copy of the completed FNA forms for your records. Read the forms as soon as you receive them, and contact your FA representative or the FA firm if there are any discrepancies or if you have any queries.
Consider your FA representative’s recommendation carefully. While your FA representative must base his recommendation on your financial situation, you also have a responsibility to decide if the product is suitable for you.

2. Monitor your investment and review your needs on a regular basis.

The FNA only provides reviews of your financial needs at one point in time. However, our financial situation can change from time to time, for example when we have married, have had a child, or have had a change in income. It is important that your investments continue to meet your needs. So you need to review your financial situation regularly to take these changes into consideration.

Q6) What does your FA representative need to do?

Once your FA representative has taken you through the FNA, he will suggest a product that he thinks is right for your needs. Your FA representative should explain what the product is and why he thinks it is suitable for you. Below are a few key areas your FA representative should explain to you:

• the nature and aim of the product;
• the benefits and risks;
• who the product provider is;
• what the fees and charges associated with the product are, including the amount of commission received by the financial adviser;
• the free-look or cancellation period available, and the terms and procedures should you choose to exercise this right;
• any warnings, exclusions and disclaimers; and
• what reports you are entitled to receive.

Your FA representative should also give you the following documents if he is recommending a unit trust or life insurance policy:

1. A summary of the information obtained from you on your investment objectives, financial situation and personal needs;
2. The specific recommendations of the FA representative and the basis for the recommendation;
3. A copy of the prospectus or fund factsheet (for unit trusts only);
4. A copy of the product summary and benefit illustration (for life insurance policies only).

Q7) What can I do if I think the investment product recommended does not suit my needs?

Let your FA representative know immediately if you feel the product does not suit your needs. You may wish to review the FNA, clarify any queries you may have before deciding on whether to proceed with the investment. You may also wish to shop around, consult FA representatives from different FA firms, assess their recommendations before you make a decision on which product to place your money in.

If you have already purchased the product, you can enquire if the free-look or cancellation period of the product (if any) is still valid. If it is, you should confirm with the adviser on whether you have to bear any costs of cancelling the purchase, and check on any other relevant terms and conditions.

If you are unable to cancel the purchase within the free-look or cancellation period, you should inform your FA representative and the FA firm he represents of your concerns. Financial institutions are expected to deal with consumer problems and feedback fairly, promptly and consistently. In the event that the matter cannot be resolved with the FA, please refer to the MoneySENSE consumer guide "Getting it right: How to resolve a problem with your financial institution" at ww.moneysense.gov.sg.

For more information on getting financial advice, refer to the MoneySENSE guide "Dealing with a financial adviser: What to look out for?" on www.moneysense.gov.sg

This information is provided by the Monetary Authority of Singapore (MAS) as part of the MoneySENSE national financial education programme.