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FCA: Advice industry not yet a profession

The FCA says the advice industry still has some way to go before becoming a profession and should look to areas such as suitability letters for further improvement.

Speaking at the Personal Finance Society annual conference in Birmingham last week, FCA technical specialist Rory Percival said the RDR has created the “framework” for advisers to become a profession, and it is down to the industry to take the opportunity.

He said: “We have seen good progress and feel the industry is broadly on the right track but there are some areas where there is still some way to go and this will take some time.”

Percival said the regulator continues to have concerns about the structure of suitability letters, warning that they are not focused enough on client engagement.

He told delegates: “We have been saying for years that suitability reports need to be improved. In many, perhaps most, cases we see suitability reports that seem to be geared to the firm’s purposes as a defensive measure from potential claims from the Financial Ombudsman Service, rather than designed to communicate with clients.

“We continue to find them to be too long, poorly structured and unengaging. It would be professional for letters to be written in a way that encourages clients to read them.”

When asked why suitability reports have become so long and technical, Percival said there are many “myths” about the regulator’s expectations.

He said: “Whether it is compliance consultants or firms generally, there are a lot of perceptions of what we expect that are not based on fact. There is a big challenge for us in communicating better with the industry and that is something we are very mindful of.”

Percival shared a number of examples of best practice with delegates, including getting structured feedback from clients on the firm’s business model and keeping a “non-business” register.

He said: “First of all, business models should be geared around clear consumer need and not just what firms have always done.

“So perhaps getting client input into that process – some firms have a client committee or forum. 

“Some advisers say ‘I have been dealing with my clients for 10 years – I know them very well’. I’m sure that is the case but I’ve also talked to a lot of advisers who have gone through an exercise of speaking to their clients about what services they want and value, and every single one has said it was a really useful exercise and they learned something new.”

Percival said one suggestion for demonstrating suitable advice is to keep a register of occasions when the firm has recommended the client keep their existing investments where they are.

He said: “The idea there is the client has come to you for your expertise and what they are trying to buy is peace of mind. That can just as easily be achieved by you saying ‘everything is fine where you are’ as it is by recommending a new investment solution. Clients value that peace of mind and will pay for it.”

Percival also suggested testing out disclosure material on non-advisory staff to ensure it is engaging and easily understood by consumers.

“Perhaps you could talk through the suitability report with the client and ask what they understand by the recommendations you are making. If there are areas they struggle with, that will be a flag for you to revisit that area. The same approach can be taken with risk-profiling questionnaires by asking the client if they have understood the questions.

He explained: “We do not expect everybody to be doing all these things. The question is to what extent are you demonstrating professionalism and putting these kinds of things into practice.”

Percival said there are a number of indicators that will demonstrate when the industry has become a “true profession”.

He said: “First and foremost, advisers will have gained the trust of consumers, and I would suggest that for this to happen, enforcement cases may need to be more occasional events than regular events as they are now.”

Other indicators include a continued move towards higher qualifications and a further move towards charging structures that are not contingent on a product sale.


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There are 15 comments at the moment, we would love to hear your opinion too.

  1. How long is MM going to drip-feed button-pushing headlines from a conference that happened last week? I could swear that we’d already had an article on Percival’s speech.

    It’s the gift that keeps on giving! (Clicks, that is.)

  2. E L Wisty (an only twin) 13th November 2014 at 12:02 pm

    At a basic level, I find the FCA’s assertions quite insulting. Professionalism is not about principle-based or prescriptive compliance – or, indeed, about compliance full stop.

    The measure of a professional is whether their advice and services are objective and educated.

    With the abolition of commission, any perceived or real conflict of interest has been removed. And, with degree level qualifications as a minimum requirement, there can be no argument that advisers are educated to a professional level.

    True, we would still be regarded as an ‘industry’, were it not for RDR; however, the inference of the FCA’s insult is that, without their continued involvement, we will fall back into our old ways. Professionalism comes from within, and the advisers of today are not the advisers of the past.

  3. “In many, perhaps most, cases we see suitability reports that seem to be geared to the firm’s purposes as a defensive measure from potential claims from the Financial Ombudsman Service,”

    Do you not think that maybe, just maybe, this tells us that the root of the problem might actually be a lack of professionalism from the advisers but with the Financial Ombudsman Service that uses staff who are not qualified to do the advisers’ jobs, let alone pass judgement on whether their recommendations, even if different from the onec the adjudicator/ombudsman might have made, is or is not perfectly valid?

  4. Mr Percival, I hear what you say and on the subject of payment for advice only, I agree. We have plenty of clients who simply wish to consult and pay for the privilege. However, on Suitability reports we must differ. I agree with the thrust of your argument on what the FCA expects. Unfortunately, it is FOS who make binding decisions after the event; not the FCA. Until this disconnect is remedied, whatever you have to say on Suitability reports will be ignored and with good reason. Why do you need to have this fundamental drawn to your attention, isn’t it obvious?
    On a final note, ”Client Forums”? Do you think we and clients have time to sit around discussing communication? We have you salary to pay!

  5. The reports stay as long as we have the likes of the FCA/FSA and FOS making decisions based on hindsight. I agree it is not client engaging but the regulations have never been interested in the client but rather the process. That is the nature of the animal we have inherited.

    There are too many examples of a person assessing a client and the suitability of the advice and they have cherry picked the scenario and file. I look at a client overall situation not one product or service delivered. My recommendation report has to reflect that and that makes it un-engaging.

  6. Talk it through with a client/customer for as long as you like. If they choose to make a complaint with selective memory, you need something robust to protect your backside with and that is your suitability letter, as the FCA/FSA induced key features documents apparently mean and count for nothing!

    Whilst we have done this article last week, it does again highlight an extraordinary naivety on the part of this chap. Hopefully he is not reflective of the wider FCA view, because if so, it is they who don’t get it!

  7. It does seem that we operate in a regulatory framework where the left hand does not know what the right hand is doing. Whilst it may be of academic interest to debate whether we are a profession surely what matters far more is that clients receive the advice they require delivered at a price that they value and can afford. And at a price where we advisers can be profitable so that we are still there to give the same quality of advice next year. At the Retirement Income Planning Conference in London a delegate asked Rory why the FCA could not give clearer guidance and clarification of their various rules, to which the reply came that prescriptiveness would be too stifling and would limit innovation. I despair at that answer. Why would that happen? I think the real problem is that the FCA do not actually know what it is they are trying to say, and do not really have a proper understanding of clients, and completely fail to take account of the fact that the vast majority of advisers now operate in a way that is very different to the wild west of the 1980s and early 1990s. It’s all very well Rory saying suitability letters should be engaging to the client (and I thoroughly agree with him) but if P.I. insurers and network compliance officers fail files unless the letters contain all manner of meaningless figures and paragraphs then what are we to do? The regulators now have created a situation where it is really quite hard to give anything other than holistic advice. Holistic advice needs paying for, and justifying, and documenting. So the costs of providing holistic advice are so high that advisers have to pass this on to clients. Clients then receive all manner of information that does not aid their decision making, and so what happens is that clients often end up going to unregulated advisers or go DIY online. So we now have a situation where the process and documentation for giving advice has become so unengaging that clients end up going online or to unregulated advisers where they then receive no consumer protection and no recourse to mis-selling. And then the regulated community pay an even bigger levy to make up for the sins and mistakes of advisers who have left the industry or were never in it. The FCA do not spend anywhere near enough time assessing their own “advice”, which of course is only guidance rather than advice! They have not looked at their own rulebooks and guidance edicts and have not analysed whether or not these tomes are fit for purpose. They have not looked at their own communications and reviewed whether or not they are getting things right (they aren’t). Or maybe they have looked at their own work and can’t see how poor a fist they are making at designing a framework that is effective, efficient and leads to good outcomes. And because they are not even answerable to Parliament, they can carry on their own sweet way. There have been some good things to come out of regulation, but the world of advice has evolved and the regulators now need to make sure that regulation evolves too. I cannot disagree with anything Rory has been quoted as having said in this article, the problem is that the environment in which we exist is not conducive to operating in the way suggested. I think the sty has made the pigs in this instance.

  8. Why do we continue to be insulted by these people ??

  9. Oxford English Dictionary….”Profession” a paid occupation, especially one that involves prolonged training and a formal qualification.

    That definition clearly kicks Regulation out of the realms of being called a profession.

    So the fact that some suitability letters need improving is enough to suggest that we don’t work within a profession, well blummin eck. I’m still waiting to read which one of the 11 or 12 risk assessment tools passed the FSA test. Is that still an industry secret given that we are all supposed to be using them as some part of the advice process.

    Changing the subject, Mr Percival is increasingly looking more like George Galloway. I wonder whether he’ll end up on Big Brother purring like a cat.

  10. The biggest joke the FCA has managed to pull is convincing us that they can dictate how we give ‘advice’ by giving us ‘guidance’.

  11. I have 15 years experience, an industry specific degree and three chartered titles! I find the regulators comments insulting.

  12. Just what we have come to expect from this buffoon !!

    “RDR has become the framework” pfft !! more like making your rugby team play in wellies has made them take on and beat the All Blacks ? because in essence that is what regulation has achieved we are trying to play a running sport with wellies on.

  13. I received today a letter from my solicitor re a property purchase. I could understand its contents but most of my clients would not. Does this mean Solicitors are also not professional or are they just like advisers following the law and regulators bureaucracy to insure they can remain in business.

    Call the hounds off, make the system clear, fair and we in turn will gladly respond with simplified Suitability Letters.

    We split our letters into two parts, a simple in English what happened, what has been advised, recommended, why, the costs which is about four pages. Then an Appendix with all the technical information a further ten pages minimum, even for a simple NISA . This is the best we can do as anything less will in the future leave us open to claims.

    I really do think that all these regulators should have to spend a month actually advising clients and then let us pull their efforts apart. May be then they would understand how frustrated and insulted we all are.

  14. @Martin Evans – I agree with you re a suitability report should be a maximum of 4 sides of A4, everything else should be in the appendices and only in the appendices if it is not covered in the KFI and KFD. There should be NO repetition of what is in to KFD in the SR.
    It is also worth remembering that the definition of a suitability report is a report in a durable medium and because we had blind and partially sighted clients as well as an illiterate one, a typed report may NOT be the most suitable report for a consumer and hence we obtained written confirmation after a recorded telephone conference call with 2 senior members of staff at the then FSA that a suitability report (note not LETTER) could be an audio MP£ file as if it is backed up in several locations, it is as durable as a piece of paper. They asked us at the time not to tell all and sundry that an audio report could be used, but after making sure I confirmed with the FCA that their position remained the same after their change of name and following my argument with them over the mention of the longstop in our client agreements (which they accepted after threats and posturing on their part for over 4 years), I don’t feel inclined to hide what they have confirmed actually is innovative, especially when they now have a project called “innovate” and are pushing guidance with NO record of what was said over regulated advice with a record of EXACTLY what was said and advised based on what the consumer discloses on the record on the sound recorded client meeting.
    The FCA including Rory continue to obfuscate over the issue of the Longstop and continue to refuse to have any kind of meaningful grown up discussion about it. Come on Rory, stop spouting the party line and take some kind of stance with a bit of integrity when it comes to the longstop or are you not allowed a personal opinion? Start engaging instead of hiding on the issue of the LONGSTOP, if it was respected by the FOS (you drafted the rules contrary to what was committed to in the pre FSMA 2000 discussion papers), then suitability reports might not end up being as long as they are. Next we’ll have to be putting in the possibility that due to the spaceship landing on the asteroid yesterday, client need to be aware of the possibility of loss of the earth in 100 years time as we don’t have a longstop to protect us against false claims of this nature.

  15. OK – open disclosure, for my sins I do compliance stuff. Not for the regulator. On the sutability reports aspect I think Martin Evans pretty much sums up what Mr P is driving at. A reasonably concise summary (and I appreciate that’s a subjective term) of what went down and what’s suggested, with reference made and clients attention dradwn to all the relevant information elswhere (KFD’s / attached appendices etc).

    I still have the pleasure of seeing reports running in excess of 50 pages….entire pages from KFD’s simply cut and pasted into reports – lots of pretty irrelevant technical detail (say 4/5 pages on retirement options on a 20 plus page report, for a 25 year old transferring a small fund and incrementing). I recall some time ago one 85 odd page drawdown report, with some key information (particularly relevant to that client) buried somewhere around page 60.

    And it’s not uncomon that I get to the end of said essays (eventually, having just about overcome losing the will), still wondering “so why are we doing X……?”

    As many say I certainly do appreciate the need to have a sound defence at some later stage to reply to the “why didn’t you” – but I’m becoming increasingly concerned that a defence of “well we wrote War and Peace to the client, it was all in there somewhere”….isn’t going to end up being challenged along the lines of how reasonable is it to expect a client to understand a technical manual. And by challenged, I don’t just mean by FOS…….

    It’s about finding and striking the right balance somehow.

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