The atmosphere in London is one of mounting excitement as preparation for the London Games enters its final phase. Underground stations, maps and roads have signage everywhere directing people to the various venues in a delightful shocking pink. Why this colour was chosen beats me but then I’m no brand expert.
Of course there are those who are not looking forward to the anticipated travel disruption and thousands of people descending on an already crowded city but my view is, if you can’t beat them, join them. I am looking forward to seeing the ladies hockey semi-finals and spending a day at the Paralympics.
So back to business; what is the financial planning community grappling with at the moment?
I would expect that the FSA’s latest guidance on assessing suitability in respect of replacement business and centralised investment propositions (CIPs) to have caught the attention of compliance officers and departments.
The results of the FSA thematic review on the use of CIPs was disappointing with 103 cases out of the 181 cases assessed by the FSA as ‘unclear’ with regard to suitability, in addition to the 33 cases that were determined as unsuitable.
Whilst those assessed as unclear is not evidence of unsuitable advice being given, the usual problem of not having defined processes and an adequate audit trail of how the investment advice was arrived at appears to still be prevalent. As the use of CIPs continues to increase firms really need to get this right.
There are two other aspects regarding the use of CIPs that I would like to highlight. These were mentioned at a recent conference at which I spoke and were delivered by an FSA speaker. Judging by the audience’s reaction, the comments came as a surprise to a good number.
First, a firm cannot outsource a regulated activity for which it doesn’t have FSA permission. So if a firm is offering a discretionary investment service to its clients, it needs to be absolutely clear about who is responsible for the investment advice, check that the agreements in place (both with the client and the outsourcing firm) state clearly who does what and be sure that the correct permissions are held.
The second point made was that where a firm uses a third party service, such as discretionary investment, it should still be sufficiently competent in the service being provided to its clients in order to be able to challenge and recognise unsuitable outcomes.
The FSA guidance includes examples of good practice, which is welcome and I would urge all firms that use CIPs to read the paper carefully and if necessary review internal processes to make sure you are meeting the standards expected by the FSA.
Finally, for those to whom it may be relevant, do take a look at the PFS’s updated Professional Direction paper on independent and restricted advice which now includes examples of how the use of CIPs may, or may not, impact on a firm’s status.
Fay Goddard is chief executive of the Personal Finance Society