Apfa in talks with FCA and FOS on suitability reports


Apfa is in talks with the FCA and the Financial Ombudsman Service about improving the format of suitability reports.

The trade body says it will produce an adviser guide on suitability reports in the next few months.

Apfa director general Chris Hannant say he does not expect or want the FCA to produce a template suitability letter for advisers.

He says: “I’m not sure how a template helps advisers communicate the individuality of the advice given. It is more likely to generate standard ‘identikit’ forms which are unlikely to add value for consumers – or protect advisers against future complaints.”

But Hannant is hopeful for “greater clarification” on how information is presented and communicated to consumers, such as guidance on layout and accessibility.

He says: “This would include high-level guidance on how to structure these reports and present this information to consumers.”

Hannant says it hopes this guidance will give advisers confidence to produce more concise consumer-friendly reports.

He says the trade body is seeking clarification on the “inherent tensions” in the current regulatory guidelines, and how suitability reports could be tailored to different circumstances.

He says: “In the FCA’s Smarter Consumer Communications paper they talk about advisers ‘layering information’ to help clients understand priorities. But at the same time regulators have warned advisers against hiding information in the annexes of suitability reports.

“There’s a difference between an adviser offering a full review of a client’s finances, and making a tweak to an existing portfolio. We’d like more guidance on what is required in the latter case. Can a suitability letter rely on information previously given, or does it need to start from scratch again?”

Hannant argues the regulatory framework, both in the UK and the EU, runs counter to producing concise reports. He notes some advisers are drafting suitability reports with an eye on protecting themselves should a complaint arise in future – rather than providing summary information for clients.

He adds: “This has led to information overload and the inclusion of many pointless paragraphs. For example, highlighting objectives that were not explored or raised by the client doesn’t help explain why a particular recommendation is suitable.”

Many advisers are concerned there is a mismatch between the guidance given by the FCA regarding concise suitability letters and how the FOS interprets these documents if a complaint later arises.

Prism IFA director Martin Evans says: “The problem with suitability letters’ length and complexity is not regulation, it is the ever-increasing claims culture and the legal system.

“Suitability letters will become much longer and more in-depth due to a lack of clear rules and mandated requirements, and claimants and their lawyers taking advantage of these circumstances.”

Moerae Life Financial Planning director Sam Caunt argues going down the template route means advisers would be more likely to disengage from clients.

He believes it is possible to produce user-friendly suitability letters tailored to an individual’s circumstances.

But he says he would welcome more detailed guidance from the FCA to improve consistency across the industry.

He says: “We’ve seen suitability letters produced by other advice firms which are frankly sub-standard. For example, one didn’t explain why a particular provider was chosen. This smacks of shoehorning clients into a course of action that is easiest for the adviser rather than meeting an individual’s objectives.”