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FCA’s Rory Percival: Where we are on professionalism

Rory Percival Peach

I have been at a number of events over the past few weeks to discuss how the RDR has affected the industry. Some of those who have sat through any of my speeches over the last few years may have suffered a bit of deja vu. But the reason for the recent burst of activity is that before the end of the year we intend to publish our post-implementation review of how the reforms have worked.

Coming short of two years since the RDR came into being, the review will not have all the answers. However, it will have indicators of where we are in terms of achieving our objectives.

One of those, and one that has significant implications for advisory businesses, is how the sector is becoming more professional.  

Some have accused us of being patronising on this point, of failing to understand the relationship between client and adviser. But the crucial point I have been trying to make is that the RDR supported and accelerated an existing shift: a change from an industry of distribution to a profession of advice. For me, that is the vital element to the term “professionalism”.

So, the question is: where are we on professionalism? To answer this, first and foremost, we have to look at the reputation of advisers – collectively and individually – with clients. Has the professional approach actually improved trust? Has it been earned?

The RDR brought in the minimum level four qualifications, which everyone has attained, and we recognise this was a significant achievement for the industry. What is more impressive is the numbers going beyond this. It is encouraging to see that around 4,300 have attained chartered financial planner status and a further 7,500 appear to be working towards it. That is just with the Personal Finance Society/Chartered Insurance Institute; there are, of course, other professional bodies as well.

While it is impressive to see many going above and beyond the levels we set, I should add that we have no plans to increase the current minimum standards.

An improvement in the quality of advice given is something else we are looking for. This is absolutely central to the question of professionalism but is not that easy to measure, especially so early on in the RDR’s life.

But that the RDR has made advice and advisers’ expertise the commodity to be sold rather than the product or proposition is a start, and we would expect to see advice that is personal to the individual client rather than shoehorning into the firm’s products or centralised investment proposition.

Allied to this is the quality of disclosure. In thematic reviews published over the last year, we found disclosure on adviser charges and services falling some way short of what we think professional standards should be. That has to change and the next round of the thematic review will tell us whether people have listened to the messages we are trying to get across.

But it is also about suitability documents. Clients come to advisers for a personal service, to draw on expertise to consider their personal circumstances and help them navigate the complex world of financial services. They are expecting to receive a suitable recommendation, explained in a way they can understand and which will help them to make an informed decision.

What we have found all too often is that suitability reports seem to have been written not to provide an explanation to the client but to defend against possible future complaints. Our view is these can very often be shorter, clearer, better structured and more focused. Advisers do not need to throw the kitchen sink at it. Rather, we would prefer that the needs of the person reading it be considered first and foremost.

The benefits of a more professional industry should be clear to all. For advisers, it should bring even better engagement with consumers, greater demand for an expert service (particularly in light of the pension reforms) and a better working environment, with fewer worries about compliance. That is what we want to see, too.

Rory Percival is technical specialist at the FCA 


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There are 14 comments at the moment, we would love to hear your opinion too.

  1. RDR may have nudged advisers in the right direction but it did it from the worng place.

    I agree with the idea of a ‘profession of advice’. So why is the regulation of advice based on products? Why does your independent status depend on you recommending a restricted range of products and not even consider other direct investments?

    Pure advice without involving a product or investment is not regulated. It follows that if you apply a little ‘behavioural regulation’ it should be no surprise that the ‘industry’ retains a significant focus on products. Regulation is a barrier to profession in this respect.

    Definition of profession:
    “A profession is a vocation founded upon specialized educational training, the purpose of which is to supply objective counsel and service to others, for a direct and definite compensation, wholly apart from expectation of other business gain.”

  2. Oh Rory ! I bet you are a bundle of fun round the Christmas table !!

    All the children delighted at the big packets of lolly pops in uncle Rory’s pockets, oh how the little ones bask in your initial praise on how well they have done, and with excited anticipation of when you dish out those sugary delights, only to be deflated faster that the balloon hitting the candle, when you tell them that their valiant effort is not good enough, there are still huge holes in their efforts !!!

    Better luck next year you tell them, as you pour yourself another larger glass of cheer and gloat about you own successes !!!

    Happy Christmas uncle Rory and stick your lolly pops up your ….. !!

  3. I guess he didn’t read the comments in the previous article on here then? Either that or he isn’t listening.

  4. I tend to agree with @Grey Area. FCA focuses advice on “product” to a greater extent than the commodity of advice. So simpler, better consumer outcomes could easily be achieved by a combination of;

    a) the regulator regulating and authorising products and making sure that the description of costs and risk (and possible product outcomes) is better described by product manufacturers; and

    b) as all advisers have to hold an SPS, letting the professional bodies deal with quality of advice issues.

    At a stroke we could reduce the scale and cost of the FCA and improve consumer outcomes.

  5. I find little with which to disagree in terms of the general sentiments of this article. However, given the FSA/FCA’s predilection for hindsight reviews and for authorising without accepting responsibility products and funds that later turn out to be toxic, how can Mr Percival be surprised that suitability reports are written very much with an eye to how defensible they’re likely to be against possible future complaints? Today’s society is dominated by a culture of complain for gain, enthusiastically stoked by, until recently, very poorly regulated CMC’s. If the suitability report is too light, a claim will be made on the grounds that something crucial was omitted. If it’s too comprehensive, the FOS has a disconcerting tendency to accept a complainant’s claim that it was all too much for an ordinary lay person to comprehend. So we’re damned (i.e. screwed) if we do it this way and damned if we do it the other.

    Perhaps to explain just how Mr Percival considers we ought to be doing it, perhaps the FCA could publish some sample FactFinds, ATR questionnaires and discussions of its latest hobby-horse, CFL.

    I did a £100,000 investment earlier this year and the letter, the illustrations, KFD’s, ATR report, KIID’s, Fund FactSheets, Fund Outlook Assessments from various independent agencies (to justify adequate due diligence), schedule of costs and charges (another area in which the FCA has repeatedly expressed a keen interest) and assorted appendices (tax, risks, stakeholder ISA’s, possible but discounted alternatives, etc) ran to almost 100 pages. That was what my network said I had to do to accord with their interpretation of what the FCA has instructed them it wants to see for the job to be considered to have been done to standards satisfactory to the FCA (and they aren’t stupid or wilfully obstructive people).

    If you want to see shorter suitability reports, Mr Percival, tell us what we can safely leave out.

  6. @Julian. I agree with you. We do the same research and due diligence as you I suspect. What we. Do differently is that we try and get the client to focus and prioritise the documents they read as there is NO hope of them reading 100+ pages before implementing something, We only print as paper docs the key documents and anything personalised, everything else is sent as email PDF after saving a copy to the clients electronic file for compliance protection.
    We put more focus on what is SAID to the client at interview as that is what they act on, not a suitability report. All meetings are recorded as MP3 sound files as our email footers state (which the FCA has overlooked in dealing with me on several occasions which have embarrassed them and could still.

  7. Oh and I agree with Rory’s article. I am not anti Rory or FCA, it is nothing personal, just that as they must challenge us to jihad (strive in Arabic, not war) to be better, so must we challenge them.
    As to improving professionalism, I am contemplating suggesting something to the PFS and FCA that will go down like a lead balloon with some advisers, but the FCA & PFS would like it and many advisers would agree with the logic I suspect even if like me they moan!

  8. Trevor Harrington 8th December 2014 at 9:22 am

    @ Mr Percival,

    It is difficult to imagine you having a more confused and misleading perception of the effects of your RDR.

    Your complete misinterpretation of the concept, habit, responsibilities, and practice, of providing financial advice to individual people in this country is manifest in your comments.

    I do not choose to believe that your attitude is consciously intended as some form of destructive wish against the Adviser profession, although that is the impression we often get from many within the regulator. However, I can only guess that you have either had very limited experience of being an adviser yourself, or more likely, none whatsoever.

    I am really sorry to be negative, as I am aware that the regulator reacts badly to criticism from the IFA profession, but really and truthfully there is not much more that I can say.

    I really do think that you should reassess your job role, and objective, and very possibly seek more useful employment elsewhere, which hopefully will be more compatible with your experience.

  9. “Advisers do not need to throw the kitchen sink at it. Rather, we would prefer that the needs of the person reading it be considered first and foremost.”

    Dear Mr Percival, you have missed the point. We are writing our Suitability Letters for those who are reading them. The point is that those reading them are CMC’s and the FOS not clients.

    Until you tell us how we can write something that a client will read, 10 pages or less i would guess, we shall continue to write letters aimed at our more dangerous audience, the FOS and CMC’s.

  10. Rory deserves a fair bit of credit for writing this article, and also for his efforts with various speeches, talks and so forth. When you work in a large bureaucracy like the FCA, it probably takes longer to get the article through the sign-off/censor than it does to write it.

    I suppose I part company on two points. Firstly, the specifics he details above may indeed be nice to haves and areas where advice firms could improve. But it’s the same old FCA nonsense to pretend that they’re part-and-parcel of a particular principle (in this case professionalism). On this basis, most established professions would be ‘mere’ trades.

    Secondly, suitability documentation that looks more like its there to defend claims is a reaction to the claims/liability mechanisms inflicted on the adviser community. If Rory want’s to stop this tendency, he needs to get to the root, rather than asking advisers to leave themselves open.

    As a practical suggestion for advisers, where you have protracted suitability reports, try sticking a summary at the front: say, 1 page summarising the advice under 3 headings: (1) recommendations, (2) rationale, and (3) risk warnings. Clearly, one page isn’t feasible for multiple recommendations, but you get the picture. The other 97 pages then follow…Recording the meeting or giving a verbal record of the recommendations (as Phil C suggests) also has its merits – though by itself, this requires you to have a particularly structured approach to describing such matters for it to necessarily hold.

  11. Christopher Petrie 8th December 2014 at 10:53 am

    @ Julian

    Not for the first time, I think your Network is giving you duff information.

    Of course you must have done your research into which funds you are recommending. Indeed, one presumes you have a full written Investment Process Document in your office? If so, much of that document can be referred to in your Suitability Letter with the comment that full details are available upon request. I’ve only ever been asked by one client to view the Investment Process Document (which we willingly supplied, and subsequently awarded the mandate to proceed).

    The FCA is quite clear that certain documents must be given to each client – KIID, Suitability Letter etc. But nowhere does it say you have to repeat the same intricate details of your Investment Process to each and every client. If your network tells you they want you to, you should take it up with them, not the FCA.

    I used to be a Network member, and frankly it was rubbish. It’s been far better to deal directly with the FCA and assisted by an independent compliance consultant.

  12. I am professional, I have always been professional and I will continue to remain professional thank you.

    We have simplified our Suitability Letters, but still have an appendix with all the usual complicated information to protect us from future ambulance chasing, FOS, FCA and other compliance representatives. With Caveat Emptor no longer applying to consumers when it comes to the UK financial services industry, the result is long and complicated reports.

    There is a fact that the regulator is clear missing, a fact that if they were liable in any way for their actions they would understand. We do not take the time and expense to create these long and complicated reports for the fun of it. They are produced as we have no legal long stop, have been blamed right or wrongly for many financial mistakes and are being hunted to the point of extinction. We produce these long and complicated reports as has been stated to protect us, as if we do not we would see claims increase and go out of business. We are effectively fighting for our existence as with no long stop where will this all end.

    Next year we see the new pension rules, HOW long do you think these reports will need to be FCA, how would you proceed if this was your business, your livelihood and your life savings and that of your families at risk?

    It is easy to be on that side of the fence and make these sweeping comments and statements, please join our side and see how you feel, see if you would want to rely on one of your simplified reports!

  13. Can I take as my text his statement that, “they are expecting to receive a recommendation …….and which will help them to make an informed decision.” That approach works were the focus is on selling a product. i’ve identified your needs, recommended a product and explained why it is suitable. The client is then free to accept or reject this.

    Looking back over the last 25 years the thing that has caused us the most problems is the arrogance that we can be certain. We were certain that endowment mortgages were better than repayment ones, we were certain that Personal Pensions were better than inflexible company schemes. I could go on and if you doubt this go to the archive and look at some of the pieces that were published in this and other papers. In the 80’s and 90’s. You will never see the phrase, “I might be wrong about this.”

    With investment advice there is rarely one solution that is going to be the “right one”‘ there are only different options that will produce different results depending on a range of unknown factors. Advice as understood by other professions involves outlining the different options, explaining the factors that will need to be considered for each one but expecting the client make the final informed decision.

    Making a recommendation is very close to making a decision for the client and implies a degree of certainty whereas a true professional will explain that they cannot identify the best solution. They can help the client make an informed decision and once they have received the client’s instructions they have a professional duty to carry to carry out those to the best of their ability.

  14. @John Trayner – Very well said. That is what I believe is professional and what I try my best to be for my clients. If I think what they AF thinking of doing is sensible, I tell them and explain why. If what they are thinking of doing could be done differently and possibly better, I explain to them and they the decide. Of what they are thinking of doing is STUPID I explain to them why and if they still want to go ahead I way up the risk to ME and then decide whether to implement their stupidity or NOT. So far no one has ignore me when I’ve told them they are being stupid!

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