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Tom Kean: Suitability system is ruined to the core

Tom Kean

Picture the scene if you can. It is the middle of a particularly dull spring and the warmth of summer is long overdue. I am sat here looking at a suitability letter for a very nice client of ours, who is one of those that fits our model of advice absolutely perfectly.

He and his wife have recently visited our delightful offices on the banks of the River Thames in Henley. I have known him for over 20 years and have finally persuaded his wife to come and meet the team as well. We have created their cash-flow model in great detail and all agree it now looks as close to their vision of the future as they could possibly imagine.

They have finally come to a point in their lives where they need to metaphorically push all the papers across the table and ask us to look after everything. Our fees have been agreed and the notion of an annual visit (probably around Regatta time) should become a habit. On the face of it, all seems well.

So why do I have a slightly glum feeling? It is not the long-overdue signs of summer, that is for sure. Could it be I am halfway through their suitability letter and have pretty much ground to a halt in a convulsion of twisted rules, acronyms and back-covering clauses?

Honestly, you should read it. My summarising “paragraph” is a page long, with copious mentions of the LTA, AA, tapered AA, IP16, FP16, VCT, EIS, get-out clauses and, finally, warnings about “daft politicians”, crystal balls and the need for us to second-guess what will happen after the Brexit vote.

Of course, I could go on. And do not think I am mentioning these things for fun or merely to cover our backs. Their situation is quite complicated, so all the technical angles are absolutely needed. And that is the point. It has become so complex that clients have zero chance of understanding things. Great for us as advisers as it keeps us in a job I suppose.

But it is a system that is ruined to the core and designed to catch you out rather than draw you in and compel you to save. And it is not just anecdotal now. There are real clients, with real pots of money and real jobs that have just given up trying to make sense of it all.

And yet, get this. After all this effort on our part – all the huge detail we expertly impart to our clients, the raising of standards and the changes made to our business models – any old Tom, Dick or Harry can set up a master trust pension and flog it to anyone eager to get the automatic enrolment task off their desks. No regulation. No protection. Sometimes no tax relief. Just rubbish.

Sorry to sound all dramatic but how can we exist in a world where you would get more joined-up thinking from the residents of a nursery school?

Tom Kean is director of Thameside Financial Planning

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Comments

There are 20 comments at the moment, we would love to hear your opinion too.

  1. Duncan Carter 17th May 2016 at 2:27 pm

    Tom, you’re absolutely right. HMG does one thing, HMRC another, Regulator then comes along with something else and the Ombudsman seems to act on the hoof!

    Oh and by the way, keep that report short otherwise the clients may not read or understand it.

  2. Soren Lorenson 17th May 2016 at 2:43 pm

    I lost a client a little while ago because she couldn’t understand my recommendation letter. All she wanted was for someone to sort everything out for her. The system doesn’t work for those people who trust their advisers to do the right thing for them.

  3. I agree completely. The hole thing has grown out of proportion, this is all for fear of FOS, not for the benefit of the consumer. Someone needs to bring back a dose of common sense or customers will genuinely go D-I-Y, make loads more mistakes and where would they all be then.

  4. andrew robinson 17th May 2016 at 3:33 pm

    ….up the creek without the proverbial implement

  5. Jane H, you are right about the FOS, but it is the ambulance chasing claims firms that encourage people to make a complaint that are the biggest problem. We spend hours sending them files after a subject access request, which quite frankly is just time wasting on their behalf, because the client should have kept what we sent them anyway? I think they do it testing to see if we have any holes in our systems?

  6. Grant Connell 17th May 2016 at 3:42 pm

    Succinctly put, unlike the outcome of the majority of the suitability letters we write.

  7. and add to that suitability report the 130 pages of illustrations, KIIDs and key features documents (2 ISA contributions, 2 ISA transfers and a GIA) and you can almost guarantee no sane person would read it all

  8. Trevor Harrington 17th May 2016 at 4:09 pm

    Generally speaking, your client service proposition should include a software driven portfolio report and financial assessment of incomes, expenditure, and taxation as well as financial and pension provision projections for the future, including notes on previous meetings and discussions.

    This report should be provided to the client at least once per year, in order that cash balances can be updated along with other changes to the clients fundamental circumstances.

    If you have the right software, the report will take between 30 minutes and a couple of hours to update and draw off your systems.

    Given the above, your suitability letters for transactions and specific advice, will be linked into your existing client data, and will be no more than one page, possibly two pages in extreme circumstances, and they will take approximately five minutes to draw off your systems.

  9. Julian Stevens 17th May 2016 at 5:37 pm

    It’s called over-egging the cake, at which the FCA’s army of armchair theorists are past masters. Giving clients what they actually need, want and can comprehend was long ago lost in the woods.

  10. Ok simple solution clients don’t understand the hoops we need to go through suggest FCA allows us two options 1. Without extended warranty 2. With extended warranty the latter is far more expensive the former as limited time for complaint – simples which is why they won’t do it yet it works for Currys etc!

  11. Philip Castle 18th May 2016 at 9:11 am

    Unless the client is going to read it ALL before the meeting how does it benefit the client? All good points and why we went over to recording meetings to demonstrate both parties intent. Having sat in on several solicitor meetings, what they cover is nothing compared to what we are asked or told to, all because the FOS system is so flawed.

  12. First rule.
    The FCA is correct in one thing; the client must be at the fore front of your mind and must come first, they are, and should be central to everything we do.

    I would have to be honest and say 90% of what we do is not…. and I repeat NOT, for the client, its for the FCA and FOS; purely and simply in their own words, “if its not written down it didn’t happen” which completely destroys there own (very valid) first rule. This means we have to have a piece of paper and the client must have every piece of paper as well as a written report for everything we do for them ! its like insisting they have chemotherapy just because they have got a cold !

    The whole “suitability” issue is…….. “no mans land” (if you will) designed (not for the client) so the powers that be, can lay mines, snipers, artillery, booby traps, and machine gun posts. Now some of these things are easy to spot some are more devious, where they (FCA) go out at night and move said traps, in short what we have now is a no mans land, so muddy, that one is bogged down before you even start to consider the booby traps, artillery and machine guns.

    I have a firm belief that the regulator is so inherently prejudiced ( a cancer that has festered for some time) it is blind to the consumer needs, as their eyes are fixed on their perceived evil that resides is us !
    Of course they have the perfect get out clause, “we are not creating obstacles, you just interpret them wrong” or “if you do nothing wrong, you have nothing to fear from us” (my personal favorite) with the ever present threat they will unleash the mustard gas !

  13. Everyone you are missing the point here. The suitability letter is not for the client. It is there to allow us to demonstrate why we have done what we have for the client when if complaint arrives. In fairness to the FCA they have on several occasions stated the there are only 3 things that need to go into a suitability letter…… Client needs and demands, why the recommendation meets these (i.e. how it is suitable) and finally the possible disadvantages. If we stuck to this it would be great. However after each ruling by FOS for the client was published, the compliance people/departments/companies rightly would say “Ok shapes, please now include x y or z to mitigate the risk of a successful compliant being made against you. Consider the number of complaints that are made and ruled upon each year and then over many years you have a build up of paragraph after paragraph after paragraph so we now have this monstrosity that is of no use to any client. The problem is that the FCA will not admit that the FOS makes decisions in contravention of the FCA rules and so to protect ourselves we throw everything including the kitchen sink at the S L. Even if you have a 3 page letter with 100 extra pages of annexes it is still a load of crap and will never end.

    • Indeed Marty, I’d be far happier if like nearly every other industry, the law was actually applied. However when you have the FOS, who are judge, jury and executioner, who make decisions that are both wrong legally and also are against the FCA’s own guidelines and the FCA themselves never challenget the FOS on this, we end up in the mess we are in.

      We ar working on a simpler system to try and get round this and make the reports far more relevant to the clients, as well as easy to understand, but will not be able to implement this, until we become directly regulated, as all the Networks, insist of reams and reams of butt covering, duplication and absurd things that are a direct result of frankly insane decisions the FOS makes.

      Ironically the insistent client debate is a good example of one of those things. If you apply the rule of law, then if the client has been advised against doing something clearly and they insist on doing it, then the system should say “on your head be it”.

      At the end of the day our job is to advise, should the client chose to ignore that advice, that is their choice, after all we all know people that make frankly silly decisions about lots of things. The moment you try to take away responsibility for one’s own actions, your on the slippery slope, but thats a debate that no-one seems to want to bother having in this country.

  14. Trevor Harrington 18th May 2016 at 4:17 pm

    There is an important issue here.

    If the vast amount of compliance paperwork (incidentally – I agree that it is way too much) is being produced primarily just to satisfy the need to protect the Adviser from the client’s potential complaints ….
    and if it is also accepted and expected that the client will hardly read any of it as it is impenetrable rubbish which can be consigned to the dustbin ….
    then as it is obviously a pointless wast of time, paper and money, perhaps we should look at ways by which we can build such paperwork into our client service proposition in order to make it valuable and useful to the client.

    If we can do that, we are turning an expensive and pointless chore with no value, into a valuable service to the client which also goes a long way to justifying our ongoing fees and trail commissions.

    If your service to the client involves sending them six monthly reports, presumably showing them something useful which they can desire and value, then perhaps that reporting system can also confirm previous conversations and discussions, reiterating the reasons why certain things were done in certain ways.

    This will then mean that subsequent transactions, requiring a reason why or suitability letter, need only refer to the most recent reports, and will therefore only need to be a single page letter, in a standard format, which can easily be linked to your client data, and which will only take a few minutes to create and print and post.

    • Philip Castle 19th May 2016 at 6:52 pm

      Agreed and having a record of what was actually said, it even better than a written report of what was forgotten to be said, especially if the client didn’t read the written report!
      KYC, Aims objectvies priorities, potential solutions and action plan, wjhy the product, why the company, why the fund, risk warnings. Unfortunately, explaining all those in writing will exceed 2 sides of A4 and often will not get read, hence why what is SAID is what the clients tend to base their decisions on and few advisers have a record of that. Just wait until a cient has recorded your meeting and the report bears no resemblance to what was said!

  15. Nick Thompson 2nd June 2016 at 6:46 pm

    Sorry but the question posed by Tom was:

    “Sorry to sound all dramatic but how can we exist in a world where you would get more joined-up thinking from the residents of a nursery school?”

    The answer is we all walked into this with our eyes wide shut – the only way this will change will be to lobby the Govenment for a change in regulation – “Impossible” “too Late” “Cant be bothered” I hear you all shout – really it only takes the will to start the process and someone (further up the food chain than me) to drive it and the backing of every IFA, Adviser and Provider – Yeh like thats going to happen !! I suggest anarchy, but we may get that in November with ‘President’ Trump.

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