Annual Suitability Reviews. Periodic Assessments. Whatever you choose to call them, they are a requirement that all firms must undertake for clients where they receive an ongoing fee under Mifid II – and are generally causing a whole host of headaches.
First, it’s important to be clear that there are two separate elements:
- An annual assessment – looking at the client’s risk, objectives, and your advice, and confirming that it is still suitable or otherwise; and
- The requirement for ex-post cost disclosure, that is, what charges a client has paid over the preceding 12 months.
There are a range of issues with each of these elements individually, as well as how they interact with one another.
Your platform providers have a requirement under the Mifid rules to send these out to your clients directly. This means they should all be getting a statement showing fees taken from their accounts over the previous 12 months.
The issues around this are:
- Different platforms are sending them at different times, which can be confusing for clients with assets across more than one platform.
- The platforms’ timings for sending them do not necessarily match when the adviser is looking to do an annual review with clients.
- These are only for Mifid II products, and do not cover pensions and investment bonds, which kind of defeats the object of telling a client what fees they have paid over the year on their portfolio…
Annual Suitability Reviews
This is a separate item which can be as simple or as complicated as you decide to make it. The FCA guidance says the ASR “may only cover changes in the services or instruments involved and/or circumstances of the client and may not need to repeat all of the details of the first report.”
If there have been no changes and the advice is still suitable, the reality is that a couple of sentences could easily cover this.
But what use is a couple of sentences plus a separate cost disclosure on (part of) a client’s portfolio? Is that really providing them with anything of value?
You can approach your ASR in a number of ways:
- As a standalone document – timed to the anniversary of the original recommendation;
- As part of your normal annual review process;
- As part of a full financial planning review; or
- As part of any new recommendations, such as a top-up.
All of these can include, or not include, ex-post disclosure, depending on the firm’s
processes and the platforms being used.
It’s easy to see how there are a huge number of variations to the ASR process and how it has been implemented in different businesses
. I’ve seen firms doing their ASR as a simple one-page report, or as a lengthy 20-page document that covers all areas of financial planning and takes over a day to produce.
I’ve also talked with firms that are tied up in knots trying to get accurate and thorough cost disclosure from all providers – at the relevant dates – to incorporate into their ASRs. This is so they can present their clients with a full picture of their total charges from one date to the next. And they’re having a thoroughly miserable time with it.
Ironically, they’re actually trying to act within the spirit of Mifid II, providing clarity and transparency for clients. But thanks to providers acting within the letter of Mifid, rather than the spirit of its intentions, their job is virtually impossible.
There are complex spreadsheets, lengthy reports and separate disclosures from platforms, which often cause confusion for clients while also causing additional work – and therefore cost – to the firm. Not exactly what the aim of the legislation was.
So, what to do?
You need to decide, as a firm, what your approach will be. But bear in mind the above: that ex-post cost disclosure is only for Mifid II plans, which is generally dealt with via your platforms. And assuming you’ve reviewed the client, nothing has changed, and you’re happy with the advice, your own legislative requirements could be a simple one-page letter.
If you consider this as your starting point and build up from there, you will hopefully find a happy medium, providing something of use and interest to your clients without burdening your team with additional work and getting mired in unnecessary complications trying to achieve the impossible.
Cathi Harrison is founder and director of Para-Sols