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Campbell Edgar: Cracking the suitability code

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One of the mantras for playing a good bridge hand is, where necessary, always count trumps.

Recent “Trump” cards being played, together with Brexit negotiations, have been a distraction from the game in hand. In the real, regulatory world, most firms are concerned that an inadvertent rule breach could put their business in jeopardy, causing them to lose the contract, hand or game by mistake.

Suitability is a case in point. It seems to cause more sleepless nights than almost any other area. The difficulty most face is the interpretation of the rules in practice and their impact on the quality of the individual suitability letter.

There is no “tick-box” solution, where advice is given to a unique individual in a particular situation, yet individuals and firms seem to apply them.

This often results in suitability letters that are too long, over-detailed, confusing, impersonal and ultimately pointless, in that clients do not read them. You might conclude that the letter is prepared more for the client file, than the client’s eyes.

Covering off the bases

Perhaps it would help to crack the code by having a simple mantra, like counting trumps:

1: Define the client’s personal objective.

2: Outline what makes the product recommendation suitable for the client to achieve that objective. This is in the context of the client’s circumstances, which will be held elsewhere in the client file.

3: Explain any disadvantages.

I accept there are more complex advice areas where specific extra rules need to be applied. In the main, however, you may find these three elements should cover off most domains and, like bridge, help you meet the contract.

Campbell Edgar is head of financial planning at the Chartered Institute for Securities and Investment

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Perfectly aligned with the FCA rules (COBS 9.4R) which mandate these three specific requirements

    • agreed, until the client complains to FOS via a claims management company that the objectives in the report were not their objectives ..then we are stuffed

      SL writing is mission impossible

  2. Simple then. Copy out COBS 9.4.7R into an article, follow that and relax. If only someone had thought of this before it would have saved a whole load of sleepless nights and trouble…

  3. My view is that the six year debate around ATRs and attitude is an absolute red herring. Attitude has little to do with the delivery of advice. Neither has box-ticking. What is required is the ability to demonstrate that the advice given was based on firm foundations as expressed in COBS 9. What is lacking in many, many firms is adequate processes and record keeping. Such firms also suffer from what one may call the ‘Fisher Price advice model’ mentality – ATR, tick boxes, backside believed to be covered, job done.

    Incidentally, FOS upheld 40% of complaints during 2015/16; that means they decided in favour of the adviser in 60% of cases. I asked them direct.

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