The FCA says suitability letters are too geared towards defending potential complaints and not focused enough on client engagement.
Speaking at the Personal Finance Society conference in Birmingham yesterday, FCA technical specialist Rory Percival said the regulator continues to have concerns about the structure of suitability letters, and suggested compliance consultants may be at the root of the issue.
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 measures from potential future claims from the Financial Ombudsman Service, rather than designed to communicate with clients.
“You need to explain recommendations in a way that clients understand. Clearly you do that by talking through your recommendations with clients, but you need to do it in your suitability letter as well.
“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 questioned why suitability reports have become so long and technical, Percival said there are many “myths” that have built up over time 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 added the RDR has given the industry the “framework” to develop into a profession and while good progress has been made, there is more to do.