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FCA on suitability reports: ‘Ask the FOS’

Advisers who are struggling to produce concise and personalised suitability reports should take their questions to the Financial Ombudsman Service, says FCA technical specialist Rory Percival.

Speaking at a Distribution Technology conference in London yesterday, Percival again raised concerns 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.”

Percival also highlighted advisers’ assessment of clients’ experience and knowledge of investments as a potential area of concern for the regulator in risk profiling.

He said: “There is the client’s attitude to risk and capacity for loss, but the often forgotten third element of the risk profiling process is the client’s knowledge and experience of investments.

“On some occasions we see experience and knowledge has not been looked at all, and in some cases it has not been looked at sufficiently.

“Where it has been asked about, in some cases that has not been taken into account in the recommendations made and the way the recommendations are communicated to the client. The classic example of that is where you have a client with little investment experience and the suitability letter is full of jargon.”

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Comments

There are 25 comments at the moment, we would love to hear your opinion too.

  1. Heh, heh. I’m watching this space….

  2. Its not me GOV its them

  3. Incompetent Regulators 5th March 2015 at 2:15 pm

    We all know the FCA and FOS don’t talk about rules, that’s because the FOS has it’s own set of secret rules that only come out after adjudications!

  4. Soren Lorenson 5th March 2015 at 2:24 pm

    ‘You do not have to say anything. But it may harm your defence if you do not mention in your suitability report something which you later rely on at the FOS. Anything you do say may be given in evidence.’

  5. I’ve been to sessions with the FOS and heard about how they deal with cases. I’ve also dealt with many cases with the FOS. Conclusion? There is a certain lack of cohesiveness evident between the two. I hope that was polite enough…

  6. E L Wisty (an only twin) 5th March 2015 at 2:31 pm

    I presume that Percival had a fast car waiting for him after the conference.

    Seriously, why does he bother to spout this nonsense? When giving advice, we are required to demonstrate a logical and evidenced connection between the client’s circumstances and objectives and our specific recommendations.

    Yet, the FCA are saying ‘we will set the rules’, but the other mob ‘will adjudicate by their own rules’.

    One day, Percival will walk onto a conference stage, and the audience will stand up and walk out. I would like to be there.

  7. 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.”

    Ask any IFA that has had a Connaught FOS complaint made about them. The last statement is a complete flight of fantasy. Guilty whatever the circumstances and acting under instruction from the FCA. A Police state at its best.

  8. So, when the FOS upheld a complaint in which the client (a personal claims solicitor) had signed a contemporaneous explicit statement that he understood the investment and it was suitable for him and a separate explicit contemporaneous statement that the suitability report reflected his circumstances and needs accurately as did the solution, what are we to make of it?

    The FOS said that despite him signing these, and was in possession of all of the relevant documentation, their view was that he did not actually understand them.

    I have every need to be worried about a complaint where the FOS is making the decisions.

  9. @Wisty – I was there….. Rory Percival was there for the whole day and wasn’t fending off advisers urgently wanting to talk to him! I was sitting next to him during at least one of the presentations and everytime I have met him he has come across as a thoroughly decent guy, interested in trying to do the right thing by both consumers and advisers. That’s not to say he and his employer are not sometimes wrong and should be challenged in their thinking.
    Rory only took part in the very last “ask the panel session” I attended I think and the interesting thing is that whilst questions could be asked at the end, only 3 people out of the whole room raised their hand and I was one of them as I believe in short suitability reports and a focus on telling the client the truth of what we think they should do after a full KYC exercise. This for me is best achieved on focusing on what is said and by whom rather than trying frantically to jot down all the clients answers (Tessa the journalist who wrote this article wasn’t taking shorthand I am sure based on her verbatim quotes, she was RECORDING).
    By recording client meetings we protect ourselves and we can ensure we do what we agree with the client rather than what the report after teh event says. it also maintains eye contact and flow of the meeting. In court, the barrister and judge might make some notes, but the stenographer makes the court recording so that ALL signals from the witnesses can be picked up, both verbal and body language. advice should be no different and as with Police from the 70’s in “Life on Mars”, a written statement (suitability report) signed by the client/accused may bear little or no resemblance to what was actually said!
    While Rory said there should be “No need” to record client meetings, with no longstop we will not know that until after we have died and possibly even later and if the suitability report has missed out the verbatim comments of the clients, we may be penalized. If there is a recording however, we can only be hing drawn and quartered for what was or was not really said and clear intent can be demonstrated of both parties, especially if the adviser and client are working to an agenda which covers all issues which are in the suitability report, risks etc and highlights the need to refer to KFDs and KFIs etc.

    Recording could save masses of time and reduce complaints going to the FOS & compliance costs, which might be why non advisory staff don’t want to consider it as it might put them out of a job. One panel member said he didn’t think clients would like being recorded so I challenged him as to whether that was a fact or just his perception and he confirmed he has never asked clients (I have and do regularly). Even Rory confirmed his adviser records his meetings so his para planner can refer back to the recording (which is what my staff do with a timeline of what was said and when) It si really helpful when at a second meeting as you can quote back to a client in their own words, reinforcing the alignment of client and advisers thoughts.

    As a supervision tool, it allows you to randomley select advisers meetings with clients to ensure what is said actually matches with a suitability report if you want to and is much more natural than an observed client/adviser meeting.

  10. Justin, and others, you are entirely right to be worried. Call for a public hearing every time there is an unjust decision and insist your rights are preserved.

    Unless one is prepared to stand up for yourself you will be steamrolled into bankruptcy and beyond.

  11. E L Wisty (an only twin) 5th March 2015 at 3:08 pm

    @ Phil Castle

    Phil, thanks for the clarification and further comments, which I agree with.

    Incidentally, I do know RP and, as a person, he is thoroughly nice. It is his actions, rather than his personality that I take exception to.

  12. @Justin Thomas. The second person I recorded was someone I had met two weeks earlier and she was a referral from a solicitor as the previous solicitor had cocked up her late husbands will. She complained about EVERYTHING. Hence why when sitting with an old client the following week i had this brain waive to record the meeting with his permission. i then went on to do the same with this lady. A year later I got a letter from her KNEW solicitor claiming I had not said half the things in the suitability report. She forget about the recording and was simply a whinger and once I had sent a precede copy of the recording the solicitor dropped the issue.

    This was despite the fact that the woman’s adult daughter had been present at pretty much EVERY meeting and simply didn’t want to get involved once her mum started kicking up a fuss and the solicitor faield to ask her either, despite she had witnessed what was said!

    It turned out the woman then went to an ex colleague of mine for advice before 6 months later complaining about THEIR advice and also the solicitor who had written to me!! A serial complainer who still needs advice and ironically if she asked me for advice again, I would happily give it to her as the recordings worked as a way of protecting myself and my firm.

    No one likes a complaint whether justified or not. What we want to do however is resolve the clients problems and hopefully move on WITH them as clients still and for it not to become a confrontation issue.

  13. @Phil Castle
    I agree, I’ve listened to, met and talked to Rory on occasion too. His heart is definitely in the right place. I’m not convinced that he’s always very practical in his approach.

    Dealing with the FOS can be a bit of a lottery, I’ve had sensible, honest dealings with knowledgable Ombudsmen and I’ve had some seriously worrying ones too. Here’s a summary of one of the latter

    Adviser: “Here’s our reasoning on why this is a suitable case”

    FOS: “I’m afraid it’s not suitable because of X, Y and Z. If it had been W it would have been suitable.”

    Adviser: “I think you may be mistaken as this case has absolutely nothing to do with X, Y and Z. If you look carefully at the documentation we provided you will clearly see that it was in fact W so please can you reconsider your response”

    FOS: “You’re right, it’s nothing to do with X, Y and Z but it’s not suitable because of U and V”

    Adviser: “But you said if W applied it was suitable and it does apply”

    FOS: “We made a mistake about W, pay up…”

  14. All true and practical, but without legal training and records as tight as a duck’s bathing costume the result is paranoia.

    Don’t forget, even though a recording will confirm what you did say, it will not contain what you did not say; and that is the rub. If recordings are the be-all and end-all, then paperwork, Key Features, Product particulars, risk warnings and the rest are of no consequence, because the client can say that they did not understand them.

    A colleague of mine recently retired from the business and is only now experiencing the joy of being free from the fear of working in this business under these regulations. He said that he had not adequately appreciated how much of his day-to-day thinking, feeling and acting was directed and heavily influenced by fear of the regulator and FOS with their endless capacity for finding fault. And he is a man of huge integrity, long-standing excellent client relations and an almost fanatical capacity for detailed records and client communication. It did not protect him when the sniff of a few potential quid hove into sight.

    And as for my solicitor friend; if I could rank happiness and expressed satisfaction with our 10 year relationship on a simple scale, he would have been 10/10 – that is, until one of his investments did not deliver.

  15. @Justin – I am not disagreeing with you. It is not the be all and end all. But in the court of public opinion and for my own piece of mind I can demonstrate my intent and the intent to the client. It is as you say impossible do tell the client everything and advise based on their individual circumstances and I laughed when Ian Mckenna suggested we would be able to do one meeting compliant sales! Get to know your client. collate all the info they have told you, do your research & come up with an idea of what they should be doing, SLEEP on it (the subconscious mind is very useful) and only then discuss/recommend a compliant course of action/solution suitable for their needs which may or may not require a product.
    I am a bit paranoid. I don’t like getting things wrong and I don’t like to be accused of doing things wrong or not having done them at all when I truly have.
    It always made me laugh in roleplays for client meetings where the supervisor wanted you to cover everything and yet skip over to shorten the observation when a lot of the time with a client is talking around issues to identify soft facts and teese out information that is material, but they haven’r realised it is and that takes TIME.

  16. Does this illustrate that there are areas of Regulation that really need an overhaul.

    Do we or do we not have a Financial Services Regulator?

    Please can someone at Canary Wharf explain why de facto we have 4 Regulators:

    FCA
    FOS
    Pensions Regulator
    The Treasury

    Not to mention HMRC and the BoE.

    I have a suspicion that the answer will be: “Ask the politicians”. Undoubtedly when there is a foul up it can be traced to them. As ever the nuMPies have put the FCA in an invidious position.

  17. I was there, and have heard RP talk on numerous occasions, and to be fair there wasn’t a lot of opportunity to raise questions (I believe it was cut short by design or fielded away from him) in the time we had.

    I don’t agree, with all this he is a nice guy, his hearts in the right place, bull XXXT, I don’t buy it, not for one second, nice has nothing to do with it, its good, honest, reasonable, regulation, not standing from a height peeing down my back and telling me it raining and I should have brought a brolly !!

    What we do today bears no reflection on how we did things 5, 10 15 years ago, and what we do today will have very little bearing on what we do 5, 10, 15 years in the future, so telling us to go ask FOS is a kop out, they like the regulator have very little idea of the job we do past or in the future, and I would wager FOS get very few complaints with in a month of the business being written, making it relevant, so covering ones arse is the only way,

  18. @DH – As you were there and RP was there for the whole day, you could have gone up to him in any of the breaks and collared him had you wanted to.

    He didn’t have any minders around him trying to stop people.

    I made a point of speaking to him and also talking to Martin Bamford as we’d never actually met before, but I know I’d upset Martin with one of my comments, so it was good to meet face to face in case he wanted to punch me, which it appears he didn’t.

    DH, the rest of what you say I don’t disagree with, hence why I opted for recording EVERYTHING, which whilst RP says should not be necessary, I would argue you don’t know what is necessary until you find you didn’t write it down contemporaneously and the FOS choose not to believe your assertions (until you play the recording)

  19. Ha, guaranteed this one would set us off again. There’s nothing like the insanity of the catch-22 world we find ourselves in to get the key-boards tapping. And the sense of vindication to be had by reading other people pointing out the things I think are so wrong too. (Hmm, must get some other hobbies.)

    Suffice it to say, pending the Revolution when we all march on the offices of FOS and the FCA, Phil C’s record-the-lot tactic stands out to me as the only way to teflon-coat the advice process without bureaucratically ruining it for both advisor and me the punter. I want to be heard, not made to read (or rather just file) half a tree of compliance-speak.

  20. Julian Stevens 6th March 2015 at 5:18 am

    How about a shorter than 10,000 pages FCA rule book? Lead by example and all that.

    My suitability reports aren’t 60 pages long — it’s all the accompanying guff and appendices that make the entire package so incredibly and unnecessarily bulky.

    And why is the FCA not prepared to engage directly with the FOS? That’s where the real terrors lie. You make the report too short and the FOS adjudicator will declare that you left out something crucial. Make it too long and the complainant (increasingly these days egged on by a CMC with scant regard for the true facts of any particular case) will claim that it was all too much for an ordinary lay person to comprehend. Either way we get shafted.

  21. @ Phil

    Its probably a failing on my part the first I knew he was there, was in the bore of a speech made by the HSBC guy ? to be fair at these type of events my own brother could be there and I wouldn’t recognise him !

  22. Dick Sprinkler 6th March 2015 at 8:35 am

    Percival – OMG did you REALLY say that ?

    The regulation monster is now self perpetuating and uncontrollable and the only answer is to DE-REGULATE.

    We now have pretty much all commercial decisions being made by unaccountable third parties without account of the grown ups involved in the transaction and it appears that those affected are happy to take it up the a+se without a wimper regardless of the outcome for fear of regulatory recourse – a truly unhealthy and unsustainable situation.

    I know I sound like a broken record BUT statutory regulation truly is the ‘Emperors New Clothes’ is it only the few that can see it ?

  23. And the sad, but factual aspect is that, in my experience in EVERY complaint that has ever been made (going all the way back through the Pensions and Endowments misspelling ‘scandals’) the complainant has outright lied in their submission. This is something we can never adequately prepare for because in the FOS eyes, the client is always to be trusted as truthful.

    BTW, is it true or an urban myth that the adjudicators at FOS receive their bonuses depending upon the number of claims that they settle in favour of the complainant. I read this some while ago and I think we should find out under freedom of information.

  24. I recall taking the role of a referee during an argument between FOS and the FSA when I was SOFA Chair since then I have no sign of them being in sync which is crazy this must change or hindsight regulation will be the rule and not the exception

  25. Hindsight regulation IS the rule, Robert. The FS/CA just calls it thematic reviewing and then claims that it’s been unable to identify any examples of regulation by hindsight. Pension Transfers Review? Endowments review? UCITS review? Na, they don’t count. Oh really? How’s that then?

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