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FCA orders past business review over advice due diligence failings

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The FCA has ordered one firm to conduct a past business review and three more to improve processes following a thematic review of adviser due diligence.

The FCA reviewed the work of 13 advice firms, also visiting seven consultancies and three providers to assess the market.

FCA director of life insurance and financial advice Linda Woodall says: “Research and due diligence is one of the three pillars of getting advice right, which is why we have returned to this issue. Firms clearly want to get this right and all firms, regardless of size or type, can carry out good research and due diligence.

“However, there are still improvements firms need to make and we’d encourage all firms to look at our findings and ensure that they are challenging themselves to ensure they’re delivering quality due diligence for their clients.”

The review focused on three key areas: competence, research and due diligence, and assessing suitability. In particular, the FCA scrutinised how advisers went about choosing a platform and suitability checks around Centralised Investment Propositions.

The watchdog found evidence that some firms considered the service received from a platform more important than the service received by the client. It says many firms “demonstrated inconsistent and insufficient research and due diligence in the selection of platforms”.

The FCA also suggests some firms were no longer reviewing platform options available, because they were content with the service they received from their existing platform provider.

On CIPs, the FCA says: “When firms have CIPs, they must still ensure the advice is suitable for the individual client.

“Firms who offered a CIP typically had a centralised function to carry out research and due diligence. While this approach may be appropriate, such firms should ensure that individual advisers understand the benefits and risks of the CIP (including the products, funds and services used) to enable them to identify clients for which it is, and is not, suitable.

“For example, some firms, as part of this process, would update advisers with changes to the CIP though regular team meetings or training.”

The culture of a firm is key to the success of its research and due diligence, the FCA says. Where a culture of challenge is not fostered, the regulator says there is a risk of “inappropriate bias” towards certain products, services or providers, and firms “inadequately managing conflicts of interest”.


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There are 8 comments at the moment, we would love to hear your opinion too.

  1. Tim 19th February 2016 at 10:43 am


    The FCA are actually being much more positive than is portrayed in the article above.

    Read TR16/1 (it’s only 3 pages long) or follow Rory Percival on twitter for the real story.

  2. Pity they do not name names.

  3. Surely you’re not suggesting that MM are portraying something positive in a bad light?

  4. What about administrators who have taken on SIPPS that are worthless and illiquid? Should they be allowed to still charge extortionate prices for “administrating” a SIPP that’s totally worthless?? Eg: £600 per year for two letters?

  5. Wrong end of the telescope perhaps?

    A problem not identified is that in many (mainly larger) firms it isn’t the adviser that does due diligence at all, it is an unregulated para-planner or investment department. Indeed it is these who in effect provide the advice, rather than the client facing adviser. They choose the platform and funds.

    The upshot is perverse in its eccentricity – advisers would seem to provide generic advice for which they don’t need to be regulated (you need to top-up your pension/buy an ISA this year/consider your IHT – etc) and para-planners provide specific advice (without necessarily meeting the client) and they therefore should be.

    Conclusion? Para-planners are advisers on the cheap. The adviser is the salesman, the planner does the work.

  6. I have one question ! is due diligence a red herring ?

    If firms are going to be found guilty (before presumed innocent) and issued S166’s because the regulator deems you have not done enough to check the firm you are investing your clients money with is suitable, then so be it……. however what about instances like “key data” when no amount of due diligence would have foreseen the catastrophe that lay ahead ?

    Can some-one please direct me to a web sight where I might be able to purchase a reliable crystal ball……..

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