The way forward on suitability reports

Caroline Escott

Recommendation eight of the Financial Advice Market Review directed the FCA and the advice profession to “continue to work together with the aim of bringing about improvements to suitability reports”.

This recommendation referred to the work that Apfa had been undertaking with the FCA and the Financial Ombudsman Service on how to layer and streamline suitability reports. We will be producing a guide for members on this subject in due course.

Our efforts were in the wake of an earlier FCA discussion paper on Smarter Consumer Communications which sought feedback on various ideas – including layering suitability reports – to minimise the amount of information consumers of financial products have to wade through. Individuals would then be more incentivised to engage with their financial decisions.

From conversations with members, it seems most suitability reports are drafted in part with an eye to covering the adviser in the case of future complaints. This can lead to information overload as the advice firm crams in unnecessary details and disclosures.

It is also the case, as I have previously argued in these pages, that the plethora of rules and regulations from the UK and the EU regarding disclosures is inimical to producing concise reports. Hopefully the FCA will use Brexit, together with its current commitment to “sustainable regulation”,  to think about rationalising some of the rules in this regard. However, the adviser community must also play its part.

On suitability reports, the FCA has been keen to engage with the advice sector, and equally keen to state there is no one-size-fits-all template that advisers can follow and be protected against any future complaints. There are no plans for the FCA to endorse a detailed template but our conversations with them so far seem to indicate some high-level, broad-brush dos and don’ts.

The heart of a suitability report is, of course, to convey to the client how and why your recommendation meets their needs and objectives. Done correctly, this is the best defence for an adviser firm in the event of any complaint. Each report should also abide by two principles:

a: Is it the right content?

b: Is the content accessible?

Each report must be personalised to the client, although the FCA notes that using a framework structure is helpful in prompting advisers to cover key points as well as reduce costs.

The content should be balanced and fair; be relevant to the client’s known experience and understanding; and use, where appropriate, the customer’s own words to make the recommendation more relevant. Instead of 90-page documents, reports should only be as long as required to cover the client’s needs and objectives, and ensure awareness of the main risks involved. Highlighting objectives that were not explored is not required to explain why a particular recommendation is suitable.

Many advisers have come to us with queries about where to place disclosures. While placing information in an annex is acceptable, important information such as costs and risks should be included upfront. There should be clear signposting as to what is in an annex and its relevance. In certain cases, FCA officials have said a summary at the beginning of a report would be helpful.

Accessibility refers to the layout but also the language used; the relevant and most important information should jump out at the consumer. Thoughtful use of boxes, font, colours, diagrams, bullet points, white space and other methods of making a document appear more interesting are all encouraged. Similarly, although use of some jargon is unavoidable, advisers could make use of resources such as the Campaign for Plain English’s guide to keeping the language a report uses clear and straightforward.

The guide we publish will cover these details in greater depth. Although we still believe that the current regulatory environment runs counter to the FCA’s desire for more concise communication, advisers, trade and professional bodies have a role to play and we hope our guide will be a useful tool in this respect.

Caroline Escott is senior policy adviser at Apfa