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Russell Facer: How to simplify suitability

It is easy to get tangled up in file reviews. Take a step back and focus on the client outcome

An adviser’s first priority should be to ensure the client’s best interests are met but how should they evidence this?

Almost all advisers would subscribe to doing the right thing for a client in a profitable and timely manner. However, almost all is not enough. For this reason, the FCA is attempting to assess inconsistencies in how firms evidence suitability across many areas – hence the Financial Advice Market Review, TR16/1: Assessing suitability, Cobs 9.3, Cobs 10. The list goes on.

Around 700 firms and 1000 files have been looked at already and further activities are underway, not least with Mifid II, the Insurance Distribution Directive, General Data Protection Regulation and Senior Management and Certification Regime all coming in 2018.

In the current climate, the fear of being challenged for giving incorrect advice, particularly in the defined benefit transfer arena, seems to be at the forefront of many planners’ minds.

Concerns around regulation – or over regulation – appear to be stifling innovation when it comes to suitability letters. Some prefer to stick with convention, other mavericks need to be reined in to protect their clients.

Many advisers’ approach to risk management often starts by asking “would our client file stand up to a forensic inspection in the event of a complaint, and protect the firm or adviser offering the advice?”

This is a popular view but certainly not a risk-based approach. It could also foster an unhealthy and unnecessary fear among business owners, planners and paraplanners alike.

Risk-based approach

We have been encouraging firms for some time to work at reducing the volume of paper presented to their clients. Risk can be managed by focusing on highly personalised, know your client information and via meaningful suitability reports backed by additional information in the file supportive of the advice and recommendations delivered.

It is about standing back from a file emotionally and allowing more focus on the outcome for the client. Taking this approach still allows you to assess the overall suitability of a recommendation and associated level of risk to the client, but reduces the time and effort needed to review a complete file and all its often-unwieldy component parts.

How short can you make a suitability report?

File review options

We approach client files in two ways when assessing the suitability of advice. A “full file review” and an “assessment of suitability only”.

The latter focuses on the key client outcomes, rather than the detail of what is in the file, and allows a firm’s training and competence officers, file monitoring officers and possibly the CF10 to trust a little more in how good their advice process, people and service delivery really is. Ultimately, however, the quality of the file and contents therein has to be up to scratch.

When deciding whether a more outcomes-focused approach might benefit your business, consider the actual or potential risks you carry. You should ask:

  • What level of client dissatisfaction do we/have we had?
  • What are the levels of change in the adviser population?
  • How much time do we spend producing and assessing suitability of advice, and what is the cost of this in time?

Answering these questions should put you in a position to challenge the effectiveness of your risk management structure, monitoring function and advice processes.

The real skill in assessing suitability, performing well and managing risk is recognising advisers are the key to success. Skilled and competent planners who know their business and can relate to their clients’ needs, not only at the points they are providing advice and services but also over the longer term, will deliver the desired outcomes for all.

That is why success in providing suitable advice remains down to the continued support and training of your employees. Trust them and your processes, or make the changes that mean you can. One approach rarely fits all.

Next steps

An ‘assessment of suitability’ approach to file review, as opposed to an end-to-end file review, considers the following key areas: disclosure, KYC, client’s understanding of risk, research and due diligence, and the ultimate suitability of the recommendation, testing key outcomes regarding:

  • That the disclosure made is clear, fair and not misleading (services and costs are clear and the reason for client engagement can be established)
  • The suitability of the personal recommendation can be seen.

This style of assessment should only form part of an overall file review process and not replace a full client file review, but it may reduce time spent on lower risk areas, less complex planning.

Disclosure cannot replace suitable advice; they are dependent on each other. A personal recommendation may be considered unsuitable but a file may demonstrate acceptable disclosure and vice versa.

Russell Facer is managing director of Threesixty



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There are 3 comments at the moment, we would love to hear your opinion too.

  1. There is a disconnect between what this article is suggesting and robo-advice. Robo cannot do what is being suggested here. Logically, that means the expectation of human advisers is greater than robo, or robo is not doing it right.

    Or the standards being applied to human advisers and robo advisers are not the same.

  2. Pseudo-intellectual waffle. I see nothing here likely persuade QC file checkers to soften their stance on what a file must contain and record. It’s a bit like Rory Percival’s regular use of the word ‘concise’, which is all very well but not actually of much practical value if the time it takes to compile every SR is increased by 50% as a result of trying to figure out how to create a masterpiece of précis. Get real mate.

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