Advisers have called on the FCA to give them more guidance on what good looks like when it comes to suitability.
Speaking at the Money Marketing Interactive conference in Harrogate last week, two senior FCA staff shed light on why the regulator conducted its recent wide-ranging review of suitability and what it had learned from the results.
The findings were published in May, showing around 93 per cent passed on suitability but 40 per cent failed on disclosure requirements.
FCA head of retail investments Clive Gordon noted that the majority of firms only had one file requested from them because the regulator was “not assessing individual firms but the sector as a whole.”
He said: “A lot has happened in this sector in the past few years…We wanted to know how the sector is doing in relation to its key regulatory objectives of providing suitable advice and complying with its disclosure requirements.”
FCA lead associate in the retail investments thematic team John Johnston pointed to issues with how risk profiles matched up with asset allocations and failure to manage potential conflicts over putting clients into the easiest scenario for the adviser when conducting replacement business as some of the areas that advisers were rated negatively on.
Johnston said that the FCA had seen instances where suitability reports listed client objectives such as “to have access to over 1000 funds on a platform” to justify the firm’s preferred solution.
He noted a further example warning against templating suitability reports, where the advantages of ease of administration had been listed for moving into a higher cost, single consolidated pension, when the client only had a single pension to start with.
But because they only provided one file, the FCA thought further enforcement activity against those firms that failed would have been inappropriate, Johnston said.
Gordon said that “where we saw good practice within a firm we called that out and fed back to the firm that was good practice.”
However, a number of advisers questioned whether the FCA had given enough guidance on what it expected to see from suitability reports, and urged the regulator to document what a good suitability report would look like.
Also speaking on the panel, EY senior adviser Malcolm Kerr summed up the mood of advisers by saying that the regulator had been good at telling advisers what they shouldn’t do when it came to suitability reports, but had not been as clear on what good practice was.