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



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Advisers who are struggling to produce concise and personalised suitability reports should take their questions to the Financial Ombudsman Service, says FCA technical specialist Rory Percival. Speaking at a Distribution Technology conference in London yesterday, Percival again raised concerns that suitability letters are too focused on defending potential complaints and not enough on client engagement. […]

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There are 11 comments at the moment, we would love to hear your opinion too.

  1. If it were only that simple Caroline. The problem is not what the FCA want to see in the SL. It is what the FOS do with it that concerns us all if a complaint comes in. I do not care what the FOS and FCA say in public – they do not sing from the same hymn sheet and quite often the FOS makes a decision that it odds with that the FCA want in the SL. We know this because in a such cases the FIS make a point saying things like “while adviser A did state x y or z in the SL I still feel that because of a, b or c, Mrs S may not have fully grasped this fact. So all the cr*p that goes in to the SL currently will continue as it is the only thing that we have to cover our ars*s. Until the FOS decide to openly rule against complainants if we have fulfilled our FCA obligations regarding content of the SL the ludicrous status quo will remain, no matter what the FCA say. However good luck with this as it is a worthy cause

  2. We already split our Suitability Reports, first half, options, costs, risk, whys, recommendations and what is to be transacted and why. This, as far as possible is written in client friendly language, as little technical content as possible and explained in simple terms. We then have an agenda with the tech stuff for the FOS and layers.

    The issue as always is everyone points the finger at the FCA, when the problem really is with the FOS, lawyers and those client/consumer who have selective memory loss when it suits them.

    Lets take a really extreme example of how the system fails. PPI was without doubt miss sold, yet it is estimated that some 45% of claims are fraudulent. The PPI claim firms get clients to sign pre drafted letters (often slanderous, no evidence and untrue) with no come back on them or the client. Yes this is the extreme, but the same principles sometimes apply to FOS claims.

    We all know cases of clients trying to pull the wool over the FOS eyes and they do see through many of these cases. Yet there is no consequence for the claimant, why, why would they not lie to gain money if they know there is no consequences? We are told they do not wish to put up any barriers, but out right lying is not a barrier, its fraud. Until there are consequences for these types of claims there can be NO balance or justice.

    If you want a fair system, not only does the issue of what is to be documented, what is correct and needed, you also have to address the imbalance within the system.

  3. Like Martin Evans states, we have a shortened letter highlighting personal objectives , risks etc , this normally lasts about 5 pages for a drawdown case which meets the new FCA suggestions, and then we attach a comprehensive letter which hopefully covers our arses.
    If the FCA produced advice ( ie- an example/template of what they require) instead of guidance ( suggestions of what to a letter needs) it would help.

    The FCA are not the issue , its FOS we are scared of

  4. Agree with the two comments earlier but one additional benefit of Suitability Reports is that everything is contained within one (big) document. It summarises discussions, decisions, feelings etc but from a business point of view it is a point of reference should questions arise later. We sometimes get a question from a client as to why we did this and the SL can be picked up by the adviser and you get a very good picture of what happened and more importantly refer the client to it. Quicker and far more effective than going through umpteen meeting notes, factfinds, emails etc. Good and lengthy SL cost but are good business practice just in case problems and issues arise later and they should not be discouraged. But the form of some of them we have seen in some cases needs to be improved.

  5. I recall working on a S166 review a few years ago.

    Transferring 1 policy onto a platform was 30 pages.

    Transferring multiple policies up to 50 pages.

    There are limits to what a customer can assimilate.

    Perhaps the key is over x pages, the FA needs to be challenged by compliance about the need for such a lengthy SL.

    • Yes, its ok compliance challenging the adviser, but compliance wont pay the PI excess if FOS rule against the adviser as a warning paragraph was missing

      The regulator should produce a SL in a standard format ..end of story

  6. Let’s not forget the T&Cs and KFD – with one provider we use each runs to 30 pages. If we’re doing ISA and Pension for example, thats half the Amazon rainforest.

    Add in the KIIDs and (if applicable) provider illustration (often irrelevant but often required) and the SL itself becomes a small part of the doorstep smashing pack the client receives.

    Is it TCF, no. Does it keep FOS happy, no, are the advisers who are bogged down with this doing whats in the clients best interest, invariably yes – so the question is how we got here and whether there is a better solution?

    I was at a regulatory meeting earlier in the week and much of this was disused – the conclusion I reached was that we should become unregulated, flog a load of UCIS, take the commission and retire early – is that TFC, (I fully suspect) no – but it removes the rest of the hassle. …. ok, we were being facetious at the time but there are plenty of ‘elephants in the room’ and yet nothing seems to change.

    There are a lot of hard working IFAs and I suspect many have a desire to reduce the cost of advice and yet FOS, levys and compliance costs simply build and build to the burden (and the resulting cost).

    • I took on a registered blind client in about 2007 and an illiterate one round about the sametime, so I contacted the then FSA at the time to ask them what format I should issue the suitability report in I am directly regulated) as a standard font written report would be as much use as a chocolate fireguard to these consumers.
      As you may have guessed, that rather confused the then FSA. In the end I obtained written confirmation that an audio report was acceptable for them. QED, it is acceptable for ANY consumer.
      Since then we have recorded pretty much EVERY client meeting (barring one or two where the audio has corrupted). At the end of the meeting when we have made our recommendation (based on an agenda) I ask the client whether they want a lengthy report detailing everything and if so will they read it. Guess what the answer is? ….

  7. Get Rory Percival on the case. After all, he’s the world’s self-proclaimed expert on concise (and, we presume, FOS-proof) SR’s and now he’s going to be setting up his own consultancy to prove it.

  8. Simple suggestion for FCA/FOS – take a specimen, realistic case set up for you by advisers, and let’s see what you come up with.

  9. I suggested that one of Rory Percival’s “concise” SR’s (without his name on it) should be submitted to the FOS as part of the documentation in defence of a fictional complaint to see what verdict would be forthcoming. But he didn’t respond. I wonder why. Talking the talk is one thing. Walking the walk is quite another.

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