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Kim North: Why suitability is subjective

The FCA’s feedback on examining over 1,000 adviser files as part of its suitability review will make interesting reading when the findings are announced in the next month or two. I have worked on disclosure and suitability reports for advisers and product providers for the last 35 years. In that time, I have found suitability is such a subjective issue. Two identical people could end up with two different financial recommendations depending on how they disclose with their adviser at the fact-finding stage.

I have had clients that do not fully disclose their expenditure, as they are reluctant or ashamed to share information about their wardrobe full of designer clothes or their debt.

With independent, restricted, guided, execution-only, single tied and non-regulated advisers to choose from, it is no wonder consumers find it difficult to understand.

Some big brands make this even more complicated as, in providing only guidance, they are not able to answer the question: where do I go to buy a product and which one do I choose? Research shows time and again the public are confused about the status of advisers and companies. Hardly surprising when you consider the Money Advice Service and The Pensions Advisory Service both only offer guidance, despite “advice” being in their branding. And when it comes to charges, advisers are able to state in their initial disclosures they will “charge between 1 per cent and 5 per cent” of the investment.

Now, I understand advisers need to wait for valuations and transfer values from providers that can take many weeks to obtain, and this information is necessary to calculate the assets under management.

But charges disclosure needs to be tightened up and advisers must state things more clearly. For example: “For a £100,000 investment the adviser charge is 1 per cent, which is £1,000. For higher investment amounts, the adviser charge is a lower percentage based on the amount invested (for example XX). This charge information will be provided exactly when we have all your investment information.”

We expected the Mifid II and Priips regulations to dictate what was to be disclosed on financial products. But like the many thousands of jobs predicted to move to the larger European cities so global companies can maintain a European base, will the European regulation not be wholly imposed in the UK now Article 50 has been enacted? We will have to wait and see.

What we do know is there are millions of pounds being transferred from defined benefit to defined contribution pension schemes, which needs to be managed and advised upon. This is a major reason to establish clarity in status and product disclosure. After all, this DB transfer amount is estimated to be in the region of £10bn a year. We owe  every client we have  clearer disclosure and better understanding.

Kim North is managing director at Technology & Technical

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  1. So true. Where many advisers and firms stumble is ensuring that they have made and continue to maintain adequate records without which they risk regulatory censure and unhappy clients.

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