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FCA ‘deluded’ over FOS and suitability letters

Advisers have accused the FCA of being “deluded” by telling those with concerns about suitability letters to speak to the Financial Ombudsman Service.

Speaking at a Distribution Technology conference in London last week, FCA technical specialist Rory Percival reiterated a view he made public in November that suitability letters are too focused on defending potential complaints and not enough on client engagement.

He said: “We often get thrown back at us the argument that advisers have to put in all the information they do because of the FOS.

“First of all, I don’t buy that. If suitability reports are personalised and clearly demonstrate why the recommendation is suitable for that individual client and is communicated in an effective way, I don’t see why that would have less chance of being upheld by the ombudsman.

“Secondly, I can’t speak for the ombudsman, but why don’t you ask them? They run a number of events around the country and have outreach managers who go to regional events.”

Responding to a question on whether the FCA and FOS would meet to discuss the issue and give the industry guidance, Percival replied: “Watch this space.”

An FCA spokesman clarified that the FCA and FOS are not in talks on the issue, but will be speaking at a number of events with joint question and answer sessions over the coming year.

A FOS spokeswoman says: “We understand that advisers genuinely want to do the very best for their customers – and when this is reflected in the advice given and relevant regulations are followed, there’s no need for advisers to be concerned.”

Highclere Financial Services partner Alan Lakey says: “Rory Percival is deluded. The problem is there is no consistency in the FOS’s decisions so advisers have to put in as many caveats as they can.

“What we really need is to get the FCA, the FOS and some advisers round the table to discuss the issue.”

West Riding Personal Financial Solutions managing director Neil Liversidge says: “It is utterly disingenuous for Rory Percival to make these comments. I have zero confidence in the FOS and that will remain the case unless their decisions are made by people with proper experience.”

But Page Russell director Tim Page says: “One solution could be for advisers to document everything they need to for compliance reasons in an internally-held file, and only include the basics in the suitability letter.”

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Comments

There are 13 comments at the moment, we would love to hear your opinion too.

  1. It’s all very well for Mr Percival to talk about suitability reports being personalised, clearly demonstrating why the recommendation is suitable for that individual client and being communicated in an effective way. The issue, though, is the virtual impossibility of doing all that in just 4 or 5 pages.

    If a suitability report covers all the required bases so as to ensure, as the FCA likes to put it, that “the client is in a properly and fully informed position” then it’s deemed to be too long and the FOS is likely to uphold a complainant’s (often false) claim that it was all too much for an ordinary lay person to understand. Anecdotally, the FOS often refuses to accept in defence a statement signed before any application forms were completed that s/he DID understand the recommendation and, crucially, the risks involved.

    If, on the other hand, the report is too streamlined, the FOS may well uphold a complaint (these days, increasingly often concocted by some rapacious CMC) on the grounds that certain key elements were either omitted or not adequately explained. It’s a classic Catch-22 situation.

    But hey ~ Mr Percival doesn’t buy that, which pretty much chimes with various other utterances from the FCA along the lines of “The FCA doesn’t recognise…” or doesn’t accept…” or “The FCA has taken on board responses to its latest consultation….” but refuses to publish those responses for all to see and to debate in open forum and just goes ahead anyway with what it had in mind from the word go.

    Mr Percival appears to have been a registered adviser in the past but only for a very short time and many years ago before he decided that he prefers finding fault with the work of others rather than actually doing the job himself. Does he really have any idea of what it’s like in this day and age, out here in the real world?

  2. For many years RWL were ‘reasons why not’ letters as they contained so many reasons that a client shouldn’t invest or contain products that they could have invested in instead….some real guidance would be nice..but don’t see that coming!

  3. We’ve been applying Tim Page’s recommendation for a long time now, it’s the only sensible & meaningful way to ensure both clients & regulators’ needs are met!

  4. At the DT seminar I asked why everyone isn’t just asked to record EVERYTHING (we do). We record the client meetings as we can then demonstrate intent of both parties and include soft facts which might not get recorded but have gone in to that computer called the “brain” , resulted in us KNOWING our clients .
    Rory said “that shouldn’t be necessary”, the problem is until the complaint lands on your desk, you don’t know what WAS necessary to cover your backside and it is just guesswork that you have put the right amount in to the suitability report and made enough contemporaneous notes. A recording will have more than just contemporaneous notes.
    As Alan says what is really needed is “to get the FCA, the FOS and some advisers round the table to discuss the issue.” agree on what basis we can work and the let us get o with it. Measure us on THAT at the FOS, not against their opinion and if the consumer doesn’t agree, they still have the courts as an option.

  5. Surely it’s quite easy. If the FCA says what’s needed in a report and if it is all included then it must be evidence to defend an FOS complaint.

    Where the problem lies is that the FOS believes it is beyond the law and whilst created out of FSMA2000 and its forerunners shall we say and technically under the auspices of the FCA, it is not accountable to anyone and not the FCA which should REGULATE the FOS. The FCA should be able to override decisions which are contrary to the FCA rules – end!

    Sometimes – and if any firm has had an unjust complaint upheld against it it will know what I mean, it feels that the FOS has decided the poor client must have been wronged regardless and as a consequence it doesn’t really matter what evidence or information provision, risk strategy the client wanted or whatever are presented to counter the allegations, the adviser is damned and guilty and without any opportunity for challenge or redress and it is as simple as that. Is that really how a robust system and one alleging integrity should function?

  6. Following on from my quote above. The problem is: What must be in the client report and what can be left in the client file notes?

    To be fair to the FCA, they provide reasonable guidance on what they want to see in a suitability report. As discussed above it’s the FOS requirements which is the great unknown and which fuels the throw-in-the-kitchen sink report writing mentality.

    The rather depressing guidance from the compliance consultants and PI insurers is “Yes please do a 1-2 page summary but make sure you have everything else as an appendix.”

    So you still end up sending half a forest, which by its very thickness is enough to put the client off reading it – no matter how well put together it is.

    It’s a depressing situation which kills the efficiency of the business, slows down the advice process and does not please clients. It only really pleases the PI underwriters – who I have to please to stay in business.

    However, I’ve not given up yet…

  7. Incompetent Regulators 12th March 2015 at 5:04 pm

    Yeehaaa…………….another Cowboy!…………

  8. Trevor Harrington 12th March 2015 at 5:21 pm

    My reason why letters (RWL) are rarely more than a single page.

    The reason for this is that they are simply an extension of my standard client service proposition (CSP).

    My CSP provides a twice yearly printed portfolio report and revaluation of all formal investment assets, collectives and pension funds, along with performance analysis and comparisons against benchmarks, and summary totals of all insured benefits, including death in service and any disability benefits. It also provides an asset allocation analysis with proportionate risk ratings taking into account all the clients assets and investments rather than just one or two, including property and cash deposits.

    On one of these twice yearly portfolio reports, I also provide an additional report and analysis of the client’s financial profile, which includes their personal details along with their description of their health, their objectives, and presumptions about inflation, salaries and all other incomes, income tax and national insurance computations, and pension projections at various ages which include all of their private, company and state pension benefits.

    On both the portfolio report and the client’s financial profile, I include my notes which are built up throughout the client relationship, and the discussions over all the years that I have been advising them. These notes are updated and added to, or deleted, each time we meet, and they show what subjects we discussed, when we discussed them, the conclusions we reached and the reasons for those conclusions, along with any action taken. In effect, these historical notes and reports held on file, are a running commentary of the reasons why we have done what we have done over many years, along with the clients changing circumstances.

    The portfolio reports, and the financial profiles rarely take more than an hour, or occasionally two hours, to update, and produce, and then send to the client. They completely justify our ongoing fees from the client’s investment assets, on which we currently charge at 0.5% per annum. Fund switches are recommended at these report times if required. The client also receives an annual statement of all fees and commissions we have been paid from their account in the preceding year, including legacy commissions and trail.

    Clients rarely request more than one meeting per year, and such meetings can be charged for, if appropriate, and they are an opportunity to update any changes whilst also reviewing previous advice. All of this can be done in the first few minutes of the review meeting, prior to discussing any ongoing business, advice requirements, or changes in circumstances.

    I am a “one man band” and I only work for two or three days per week, with a current register of 57 clients.

    The above is why my reason why letters are rarely more than a page.

    The above is only possible with the correct client service proposition.

    The above client service proposition can only be achieved by embracing the correct software systems and an integrated back office.

    I have been working in the above manner for over thirty years and have grown up with the software which I use.

    I can meet you and tell you more about the above systems, and how it works for me, but it will cost you £500 per day, per person attending.

    Love to all
    x

  9. It’s been said before but I’ll say it again. The problem is the FOS’ terms of reference which allows them to decide what “is fair and reasonable in the circumstances of each individual case.” They have take into account the law, rules, codes and good practice that applied at the time of the event complained about – but are not restricted by them.

    So how can you defend a case against such a wide criteria as “fair and reasonable” without a forest of paper?

  10. @ Incompetent regulators: Que? Please explain?

  11. Take The High Road 12th March 2015 at 6:16 pm

    Nice one Tim….

    hope all is well.

  12. ***STOP PRESS***
    Mr Percival finally comments on reality…”First of all, I don’t buy that”

    ***BREAKING NEWS***
    The ‘Flat Earth Society’ welcome Mr Percival as their latest member

    God help us – PLEASE!?!?!?

  13. Every time we have a compliance visit we are told to put in the same old warnings that we put in the year before and the year before that, even though the client is topping up their ISA or pension into the same plan. We then have to review the ongoing suitability of that platform or contract every time we make a transaction.

    It has been suggested we refer to the original suitability report instead of repeating ourselves, which sounds sensible. My reports are around 3-4 pages of personalised text, which clients are happy to read as it relates to them, and occasionally they congratulate me because it is an accurate summary of what we discussed and agreed.

    Beyond that is overkill, if you have met the client expectations in the first few pages then a later complaint is unlikely. I think that is the problem, bombarding clients with lots of paper does not mean that the actual advice was appropriate, quality not quantity.

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