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FCA: Suitability letters too long and unengaging

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.


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There are 34 comments at the moment, we would love to hear your opinion too.

  1. OMG! I really want to bodyslam this guy!

  2. It is difficult to disagree with the sentiment within Rory’s ‘pitch’, but the practicalities of the world we operate in make suitability report writing naturally ‘defensive’. A future complainant may not be the individual you are advising. It could be that they meet meet a new advisor who, by way of ‘adding value’ encourage a complaint based upon the contents of the historic suitability report. it could be that the client passes away, and the deceased beneficiaries choose to complain – again based on the historic suitability report. or finally of course, the beloved ‘ambulance chasers’ who nowadays place full page adverts in the press reaching out to investors encouraging complaints.

    Now, the overwhelming majority of the readership here will be thinking – ‘so what – I’m bulletproof – I give top notch financial planning advice’. That may be so, but in the eyes of the FOS, if it can’t be evidenced – typically via the suitability report – your are on very thin ice indeed. Thus, in my view, suitability reports will trend towards being over long and somewhat defensive.

  3. I totally agree with the sentiment but and it’s a HUGE BUT successive regulators have pushed advisers in to the defensive corner by saying that you have to cover practically every if, but and maybe and that if it isn’t written down it wasn’t said.
    I don’t suppose that you would like to give us a recommended/template letter that you consider informative and compliant would you?
    No–I thought not!!!

  4. OMG – to quote my kids. Somebody give this guy a medal.

    However before it can change the FOS and PI insurers need to be engaged otherwise nothing will change.

  5. ‘No Win Scenario’ coupled with ‘Rock’ and ‘Hard Place’ seem to spring to mind for some strange reason??? #justsaying

  6. If the regulator provided specific guidance then I would agree with Mr percival.

    Unfortunately we live in a world where the regulator gives generic guidance yet is specific in it’s retribution. They apply the rules of today to the advice of the past.

    FOS is a law unto itself and seems to take no account of the guidance given by the regulator at the time the advice was given.

    Also as we all know if advice goes wrong the adviser carries the can no matter if the failure of advice was underpinned by regulatory failure, fraud or otherwise.

    Ambulance chasing Lawyers abound and multiply and this muppet expects suitability reports to be kept concise????

    Suitability reports used to be concise to the point and relevant but no more.

    Rory Percival you are ignorant, out of touch, unrealistic and naeive. Your organisation is a shambles, innefective, innefficient, self serving and isn’t fit for purpose.

  7. It’s all very well for the FCA to say this, and to some extent I agree, BUT, they are not the ones that deal with complaints, that is the FOS, as John says, the attitude has always been if it ain’t written down it wasn’t said, so if any IFA has any sense, it’s all written down, and yes it is a defensive measure.

  8. @Anthony Carty – 100% agree with your comments. And many made by others, particularly with regard to FOS, unfortunately, they take a very different view, advisers have no choice but to take a belt and braces approach.

  9. Maybe the only way forward is for advisers to produce not one but TWO SL’s, a long one and a short one, the latter cross referenced to the former. If clients don’t bother to read the long version, despite having been earnestly encouraged to do so, that’ll be their look-out. They won’t be able to claim the information wasn’t made available to them.

    Then again, the FOS will doubtless find some grounds or other to find fault even with that modus operandi. How can the FCA be surprised that advisers are intent upon documenting their recommendations to the nth degree so as to protect themselves against future complaints?

  10. Perhaps we could write them in the style of Peaky Blinders.

  11. I happen on this occasion to agree with Rory, however when you are attacked constantly from all four corners of the ring (FCA, FOS, FSCS and the treasury) , I think his argument for change is miss directed ?

  12. We work in a world where today’s recommendations are judged by tomorrows standards and if it isn’t written down it didn’t happen.

    I have seen some of the templates provided by compliance consultants and they are awful, as dry as any legal document you could read.

    No wonder adviser’s suitability reports “are too geared towards defending potential complaints and not focused enough on client engagement”. As the comments above confirm – what choice is there?
    Rory – you are correct in what you say but frustratingly not helpful!

  13. This is a bee in Rory Percival’s bonnet and I can relate to it. Too many clients are receiving too much information to read and understand although you can bet they and their solicitor will go through it with a fine toothbrush ten years later when the claim goes in. What should be happening is that the templates that software systems produce need binning so that you can present a brief overview with your recommendations with the detail presented later on.
    But I do wish that Rory Percival would go back to selling. I have just prepared a suitability letter for a client for PHI and looked at the compliance support companies check list. It was long and highlighted several issues that need to be pointed out to the client. Yet there was still several issues that were not on that list. So feeling very confident I went to the FOS site and looked at what they say clients should have pointed out to them. It made our list and our support company’s checklists look very inadequate! The FOS have a very long list of what they expect advisers to point out to clients at the point of sale (with an inference that self-employed workers should not have indexed benefits as their income varies more than those who are employed!). FOS are culprits Rory…
    So if simple pure protection products have to have so many suitability paragraphs then investments are even worse!
    Mr Percival is being rather defensive – the reality is that the FCA are not the real culprits hence his sensitivity – but claims firms, FOS, solicitors and dishonest consumers.

  14. Oh dear lord………………….give me strength.

    If the FSA/FCA had asked any adviser at any point over the past 10 years what they thought of suitability letters they would have said – “They are too long, unengaging and mainly to protect ourselves from future claims”. We all know this but what can we do about it? All firms are terrified of a client coming back 10,15 or 20 years later and claiming they didn’t realise their investment could go down as well as up. As previous commentators have mentioned the FCA and FOS are not on the same page and if it isn’t written down it didn’t happen. By written down we mean written down and presented to the client, it isn’t good enough to have the notes on file. This is the route of the problem, the suitability report isn’t a document detailing why a product or provider has been recommended, it is a summary of everything held on file regarding that client.

    If the FCA thinks we’re putting together bland, unengaging, extensive suitability letters because it’s fun and we think it’s the best way to communicate our advice they really have no idea how the average adviser works. If we were free to write SL’s in any way we thought best surely by now some innovation would have occurred. This problem lies squarely with the FCA and FOS and their inability to work together.

  15. At a FCA seminar last year, the speakers were advocating a more abbreviated suitability report containing the discussion with client, reasonings and recommendations with all the additional (must have to cover ourselves) information in accompanying appendices. It is still a belt and braces approach but it is more user friendly and there is a chance the client will read at least the salient points (in the first few pages).

  16. I suspect folks, that within the natural confines of a news article, there isn’t the room to give the full picture, that Mr P probably painted (having heard him on previous occasions).

    While quite appreciating it’s a difficult balancing excercise – short and concise is good, but ones’ rear needs covering. However I recall once seeing an 80 plus page drawdown report – some important factors covered somewhere around three quarters the way through. There does come a point at how reasonable it is, to expect a client to wade through so much technically phrased verbiage. A good number of reports I see simply regurgitate (often a straight paste) from KFD’s rather than referring to and highlighting the issues within KFD’s / appendices etc.

    As I say, I have every sympathy with the need to ensure i’s are dotted, t’s crossed etc, but at the same time, there’s some need to try and keep it as simple as reasonably practicable – otherwise personally I think there culd be some risk of an adjudicator applying the “reasonable” test as mentioned above…..

  17. I whole heartedly agree with all of the comments above – The FOS is the loose cannon that we have to “bomb proof” our advice and suitability reports against.

    Only this week I attended a FOS workshop where we discussed a couple of case studies to see how the FOS makes their decisions. One of the case studies involved a man who had “lost” his debit card and there had been fraudulent activity. The bank rejected his complaint because the card had been used with the PIN even though the man was no where near where the card was used. It turned out the man had got very drunk, picked up a lady(?) who found out his pin and left his hotel room with the card before he awoke the next morning. Everyone discussing the case thought the man had been reckless and his own lack of control had resulted in the loss of the card and therefore until he reported the loss to cancel the card, he should be liable for the losses. The FOS did not think the Bank were reasonable and ordered the complaint to be upheld !!

    I was thinking Mr Percival needs to be invited to the “coal face” to find out what it really like down here – But, hey! – he would probably ask “why do I need all of this safety equipment – I am the Regulator – I know best” !!!!

  18. Got to add that the comments ‘lot of perception not based in fact’ is clearly not true. This is where we need regulators who have actually sat with clients as advisers and understand what is going on. The compliance consultants/department have only grown in status because of the FCA (under various names) and the predictably inconsistent FOS.

    Case in point the new pensions flexibility. A few years from now FOS are going to be overwhelmed with people claiming ‘I didn’t understand’ or ‘I did not know’. If the recommendation letter/report does not say it FOS ignore it even if other evidence in letter, emails etc say otherwise. If you were a PI insurer would you pick up that risk?

    Sorry but the belts and braces remain until we have some consistency and a large dose of reality.

  19. Has anyone ever asked the FCA and FOS if they read the comments written by IFAs about articles such as these. If they don’t read them they should. If they read them and ignore them it would not surprise me. Does the FCA ever have constructive meetings with the FOS so they could get on the same page?It seems to me that they both live in ivory towers. It just happens that they are different ivory towers.

  20. Absolutely. But what about the junk you force us to send which is even more boring and invariably goes straight in the bin – The Key Features and KIDS documents. Absolute rubbish. Just compare these to a fund factsheet which actually gives some real information.

    What is the point of projections. If the market does well you’ll make some money if not you’ll probably loose some. We are dissuaded from using percentages but these documents abound with them. Logic?? I guess perhaps joined up thinking isn’t on the agenda.

  21. Mr P really has no idea what happens in the real world of FOS. I am in a network since 2002 and they used to deem acceptable, a 3 and 4 page suitability report for all simple protection & simple investment cases respectively – ISA, U/T PPP. On a regular basis we used to get emails form our compliance department saying that “Due to an adviser losing a complaint regarding x, y or z not being able to be demonstrated we recommend you ensure that with immediate effect you cover this/these off in your suitability letters”. Now, when you get 3 or 4 of these a year over a 12 year period, the length of SL’s has increased HUGELY. We now have a situation where a SL for any protection plan being a minimum of 5/6 pages, an ISA/UT/bond is at least 9/10 pages, PPP around 12/13 pages. I wont even begin to tell you about a pension switch, drawdown or (until the last budget) an annuity. This does not include copies of the research done, fund info, appendices (where applicable) etc. I don’t blame the Network one jot. The FCA is 100% correct in its thoughts around SL but unless FOS generally winds its neck in, there is 100% chance that these will not change. I really do not understand why Mr P cannot grasp the situation here as it is not rocket science. We stand or fall on what is in Fact find and Suitability letter and any way we can protect ourselves, we will do so. We are not going to jeopardise our business and will do whatever we have to in order to cover our backsides. Anyone but a regulator would find that a very simple concept to grasp.

    I would make a request of MM here to make a FOI request to FOS to ascertain the total number of complaints they have investigated, and of these, what percentage have they found in favour of advisers and what percentage have they found in favour of complainants. I would be interested to know

  22. Does this gentleman just bin the leaflets he gets whenever he buys a domestic appliance?

    They are written so as to provide a combination of guidance as to use, an overview of features, a health and safety guide and an all encompassing ‘I’ve told you so don’t blame me’ guide. Incidentally, they are written in several languages and also run to many, many pages.

    As with all retailers, whether people read our guides or not is up to them. For a good compelling read though, you may prefer to visit Waterstones.

  23. Suitability letters are too long and unengaging and are geared to the firm’s defensive measures, but why?

    Because The FCA & FOS ignores the suitability of the recommendation, ignores illustration, key features and signed applications, explanation of risk appropriate at the time of the sale. They (FCA/FOS) don’t accept client signatures or even take it that the client should read what he signs. Instead, they apply retrospective redefinition of regulatory requirements and enforce retrospective reconstructions. Further regulators act with hindsight & invert the burden of proof, which would otherwise apply.

    Of course we try and protect ourselves!

  24. Mr Percival, I have a complaint on my desk at present which relates to an endowment which matured last week after 25 years.

    The complainant did not get any reprojection or red letter because, despite paying thousands of pounds to the provider he was too stupid to tell them he had moved.

    The policy has a shortfall of nearly £15,000.

    The adviser has been stripped of the right to say it is too old to consider.

    He no longer has a full file. There is no indication of the investor’s ATR because it was not required until two years later.

    However, it does meet your requirement to have a multi page suitability report because they were not required at all until 5 years later.

    Could you please tell the staff at FOS who need neither an investment nor a mortgage qualification and I suspect were still in short trousers, if not in nappies, in 1989, that this lack of documentation does not mean they should assume the product was missold.

    I ask because, much as I agree with your sentiment, as others have said, the reality is that FOS has no understanding of this and goes with its current whims rather than the Law which, for all its faults and shortcomings, is based on reasoned argument and is ultimately decided by members of Parliament, all of whom know can be thrown out by the rest of us six months from today.

  25. Yes, maddening to see how the need to cover backs sees compliance-driven wordings proliferate inexorably, all to the customers’ and front-line advisers’ disadvantage when it come to the main need at the time to identify and get the right arrangements in place.

    FOS complaint uphold rates for advisers as a group would indeed be interesting.

    What we do know is that in the year ending March 2014, IFAs as a group accounted for only 0.5% (yes half a percent) of complaints received by FOS. Whereas banks accounted for 79%, in great part due to PPI, followed by 7.5% for general insurers and 5.5% for general insurance intermediaries.

    Also from the big networks we see uphold rates of 21% to 27%.

  26. If Rory Percival and his FCA as ” regulators”, reduced the Administration – then ” suitability reports would not be required, by the Regulation placed upon us to be shorter more to the point and more meaningful. The FCA refuse to acknowledge that a suitability letter once typed is out of DATE. It reflects the opnions expressed – minus any changes – to protect advisers form the people in the FOS and the FCA – who do not understand the Meaning of Financial Planning – or helping clients get financially well organised – or provide SOLUTIONS to complex financial areas. One such area is additional Income in Retirement – where these incompetent MP’s look to short term politics – rather than to reasoned argument and reasons WHY . . .people should look to save for retirement – and prefer the politics of the short term – to curry favour ( no Pun Intended ). The increases through Auto Enrolment IE Increased National Insurance – compulsory pension contributions by employees and employers – to cover up the increased TAX on savings – to divert employees wages into insolvent insurance company pension arrangements EG Scottish Widows – owned by Lloyds and TSB and their respective Black Holes in their finances – some 27 % owned by the Government ( Cameron and Osborne ) – so funding through the ICAEW etc will help the government get back their share – before the SELL OFF – and those in pension funds will need to take their chances – as they have to do with Equitable Life and Northern Rock . Invest in a pension fund – with such blatant . . . . INSECURITY – potential for NON RETUNR OF SAVINGS / INVESTMENT . . .Lack of Trust, inconsistencies AND . . . BREACHES OF TRUST by these insurance company Trustees – Not Bleedin’ Likely . . . .. me Lord ! I am a PENSION SINSOLVENT VICTIM . . . . .Get me out of Here I am a Victim of Scottish Widows in house pension scheme – their actuaries and the pension Scheme Trustees . . . . . .

  27. I act both for IFAs in defending complaints and for consumers pursuing complaints, albeit mainly complaints against banks and other larger institutional firms and often providers.

    Whilst I can well understand why suitability letters have become so long, detailed and defensive, I often find that it is that very type of suitability letter that lets the IFA down because the defensive qualities are illusory.

    The more you say then the more scope you give for later minute dissection and the more you open yourself to attack.

    Very often the suitability letters I have to use to defend an IFA, or on which to pursue a complaint, have been written by the IFA in grammatically clumsy style, often in pseudo-legal speak and with poor flexibility of vocabulary all of which frankly makes the IFA a sitting duck. Some IFAs’ suitability letters that I see are barely literate.

    Rory Percival says that often compliance consultants have a hand in the drafting of the style of these letters, and I would have to agree. The problem is that their training is in regulatory compliance not in drafting clear and concise text that conveys all the required information in an easily digestible form.

    You are not going to like this, but I have often been impressed by the manner in which some FOS adjudicators and ombudsman (and I do stress the “some”) are able to analyse and narrate the bones of a complex case in simple bullet point format even if I do not agree with them.

    Writing an informative letter that conveys the required information that engages the reader is an art. It seems to be a dying art, but given the regulatory world that IFAs work in it always surprises me that little or not attention is given to that in training.

  28. We are often attacked by reckless individuals who are Greedy – and lack knowledge Skill and/or integrity. Some clients are Mean ( with a big M ) – they refuse to understand advice, refuse to take advice and are encouraged by the likes of martin Lewis and Nick Cuttiicci – and other financial reporters ( as opposed to quality journalists ) to sue – or make Formal Complaint – to make obtain money using deceit and deception ( see reports on Fraud from insurance company providers – who are often quoted as having lots of money and are easy targets). TRUST is the basis of insurance – and TRUST needs to operate form both sides. ” Doing the Right thing ” is necessary – and Directors have chosen to IGNORE THIS – in favour of their own, self – centred – selfish financial requirements – to keep their job and their Gross Negligence and Fraud is covered up at the highest levels . . .by the Firm, by The Industry, by The Regulator ( The FCA ) and by the Government. Suitability letters do not need to be lengthy – Compliance and Administration is Lengthy – The numbers of Employees required are a burden on further costs – and the FSCS Levy is a further unnecessary burden . . . and not required if the FCA did their job correctly – or efficiently or AT ALL ?

  29. I take Alisdair s Sampsons point re suitability reports and the FOS adjudications being good bullet point summaries which is why I read them before commenting on articles in the press.
    as to suitability reports being too long, I agree they are and the longer they are the less likely they are to be read at all by the client, BUT Rory misses the point in that the fear of the adviser is the FOS rather than the FCA, hence the lengthy reports. The only complaint we have had to defend however didn’t get as far as the FOS as we had recorded the meeting as an MP3 file and could disprove the accusations, while ironically the suitability reports for Keydata were no use to man nor beast as it was the FSCS who subverted the FOS and went straight for legal action, which is another area which is at odds with Rory’s comments i.e. one regulated individual can rely on the Key Features Documents of a provider (Keydata for example) or other professionals (Dr Debbie Harrison of CASS business school who is now on the FSCS consumer panel!)

  30. “Rory misses the point in that the fear of the adviser is the FOS rather than the FCA, hence the lengthy reports”

    Sums it up in a nutshell.

    Rory has it spot on when he says that reports are too long, and are structured to defend FOS complaints rather than to engage and inform the client.

    However, I don’t think it is accurate to state that this is because of a misconception over FCA requirements. I think more and more people are aware that the FCA may have a particular stance on a matter, but that will not necessarily be mirrored by the ruling from an unqualified FOS adjudicator/ombudsman with no industry experience.

    In common with a lot of people, I would feel far more comfortable explaining processes and actions to the FCA than I would be to FOS.

    FOS publishing decisions has been an eye-opening experience. I’m not sure whether Rory or other senior people at the FCA have had the opportunity to review these in any detail, but it is these decisions that are shaping suitability reports, not the words of the regulator.

  31. Alasdair makes some good points but the problem we have with Suitability Letters is that we have to cover all eventualities, examine all possibilities and explain the implications if what happens should the client take one route and the impact on all the other possible permutations and possibilities. FOS adjudications have the advantage of hindsight in that they know that this has happened since the original advice was given and therefore need only focus on that aspect. IFAs have to write the letters in anticipation of a number of possible outcomes and frankly that is much harder to do. Going back to PHI and FOS, self-employed clients should perhaps not have indexed policies because they may be over insured. We still have to point out that if they refuse indexation they may later become uninsurable, or change their occupation or smoker status all of which has serious implications for the client such as loss of income or cover. They can of course refuse indexation each year which we have to point out. FOS only have to judge on one outcome of all the possible permutations – the reason for the complaint. Much easier for them. IFAs can get 90% of the job done correctly but FOS will crucify you for the 10% you get wrong.

  32. If the FCA are monitoring the responses to this article, I would like to throw them a challenge. Lets have another Thematic Review….

    1. You ask all advisers to submit to you all FOS responses they have received which include a ‘no evidence of disclosure to client’ reason for upholding a complaint.

    2. Then you produce a sample ‘short’ suitability letter for a client (for each product type) which will ensure that we have covered all of these areas.

    The industry is struggling to achieve your goal and remain protected. Every time I look at the FOS responses, all I find is more areas our suitability report should cover to ensure our advisers and company are protected.

  33. PS. I like many in the industry learn from the mistakes of others, I look at the FOS responses to the complaints they have received and adjust our advice procedures to cover chinks in the armour of evidence of disclosure.

    One problem we are faced with is: Documentation on file doesn’t necessarily equal automatic acceptance by the FOS that the information it contains was disclosed to the client; that leaves the suitability report as our only real chance of showing disclosure.

  34. Tell me what I can safely leave out and I will write shorter reports ? Until you do so I will continue to write long CYA reports – no go away and play…..

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