Most reports can comfortably cover
the ‘who’, ‘what’ and ‘where’, but the ‘why’ and ‘how’ are often overlooked
Paraplanning is about much more than suitability reports, but there is no denying they are a fundamental part of the role and one of the trickier elements to get the right balance on.
Unfortunately, it is still the case that paraplanners have the conflicting challenge of creating something that:
- Each client can refer back to, and fully understand exactly what has been recommended;
- Is considered compliant (bearing in mind this will mean different things in different firms) and covers all regulatory requirements;
- The adviser is happy with. Each adviser will also have their own preferences, which is understandable given this is the written representation of their relationship with the client.
So it is not surprising there is no one-size-fits-all approach to suitability reports. However, paraplanners should consider the following as a starting point:
- Know the compliance requirements within a firm, as indicated by either the internal compliance team or external support. This should be broadly fixed and something the paraplanner gets familiar with at the outset;
- Consider the adviser this report is representing. Are they focused on it being efficient and as short as possible, or are they a detail person and would prefer there to be more information for them to have a more thorough conversation with the client?
- Think about the client and the advice. An experienced investor doing an Isa top-up will require a different approach to someone getting advice for the first time and consolidating a number of plans which have been accumulated over the years.
Do not be afraid to bring this level of personalisation to each case. The importance of suitability reports should not be underestimated and this approach will help maximise the potential of them achieving their ultimate goal: to put the client in a clear, informed position.
Then ensure the report covers five key elements. Most reports comfortably cover the first three, which are:
1. Who: Who is the report directed at? Usually straightforward enough, but important to consider carefully where there are multiple clients, powers of attorney or trusts involved;
2. What: What exactly is being recommended? This is very tangible; for example, an investment into a general investment account or a transfer of existing pensions;
3. Where: Where are the funds recommended to go? This will cover both provider and investment strategy.
So far, so straightforward. But there are two more elements, not always covered so comprehensively:
4. Why: When I started in financial services, suitability reports were called Reason Why letters, and that remains a fundamental factor. Why exactly is this the advice being given right now, for this client? Why the pension transfer? Why that provider over others? Why that investment strategy for their risk profile and objectives?
5. How: If the why is a shorter-term consideration, the how is the longer-term issue. How will this advice ultimately meet the client’s objectives? Any recommendation is unlikely to immediately achieve goals, but may be the starting point for setting clients along the path to hitting them. The suitability report should be able to position the advice in that way.
A compliant report will cover the first three points but a really good report, that provides context and clarity, and helps the client understand the advice in relation to their own goals, will cover all five.
The suitability of the advice is not dependent on the suitability report alone; it is based on the whole file and every stage of the advice process. But there is no doubt the report is the focal point that pulls all of these facets together and should give a firm comfort that a client’s understanding has been at the core of the process.
So a starting point of understanding the compliance framework in which you are operating, tailoring the report to both the client and advice type, as well as the adviser’s preferences, and giving it a final review at the end as to how clear the why and how are covered should help take your reports to the next level.
Cathi Harrison is founder and director of Para-Sols