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IFAs call for FCA clarity on suitability

Money Marketing conference sees advisers call on FCA to show what good looks like, not just what bad does

Left to right: Kerr, Johnston and Gordon discuss the FCA’s suitability review with Money Marketing editor Justin Cash

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.”

Practical lessons from the FCA’s suitability review

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.

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Comments

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

  1. Don’t ask the FCA.

    “It’s the FOS, stupid…”

  2. “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…”

    Just a thought: if a firm took action which resulted in complex administration, would it not, as a commercial enterprise, need to reflect this fact in its pricing … which would ultimately have to be paid for by its clients?

  3. Re Malcolm Kerr’s comment at the end of the article.

    Nothing has changed apart from the name of the regulator!

    I remember asking FIMBRA what they wanted to see in a Compliance plan when they had criticised ours on a visit. No guidance at all offered………

  4. The FCA has frequently indicated good practice on suitability reports

  5. The theory is a ‘good’ suitability report is succinct, client focussed and perhaps 5 – 6 pages.

    The reality, provider disclosure docs alone (KFD, T&C, illustraiton, KIIDs and Charges) will be c70+ pages.

  6. First and for-most, lets be honest with ourselves advisers, FCA FOS, PI companies numerous industry experts and consultants

    Suitability reports are / will, never be written for the client, they are at the back of the line

    If they were really centric, then and only then, could reports be 2/3 pages.

    Now there is a massive miss-trust from the FCA, FOS, PI companies, against advisers as any initial leaning is the advice is wrong you it must prove its right !

    Now the suitability report should be a stand alone document….. if read by client OR THIRD party if challenged, give sufficient indication as to the, suitability of advice and product recommended,

    There is no way on this green earth would I write a report based on 2/3 pages or even 6/7 for that matter; even for a simple ISA transaction, they run into 14 to 18 pages with appendix.

    Of course the stock answer from the FCA, FOS, is we have sound rules, guidance, and provided good practice, if you interpret them wrong that’s your look out, and in the same breath saying you do them like we say, you will have no problem with us and as for FOS why dont you go and ask them yourself….

    Life is easy on a guaranteed income, budget and no risk life is a bit different from the business end of the shot gun, rather than your finger on the trigger.

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