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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.”



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There are 17 comments at the moment, we would love to hear your opinion too.

  1. Victim of dodgy claims 28th September 2016 at 2:38 pm

    The FCA.amd APFA should be educating the FOS staff. As their decisions have a major impact on complaints. Therefore educated amd experienced adjudicators amd ombudsmen, is a. must!

  2. Perhaps they should enlist the self-proclaimed expertise of Rory Percival in how to produce (considerably) more concise yet still fully compliant SR’s.

  3. I have to disagree with Sam Caunt, on his “provider” point

    IMHO the provider is largely irrelevant (and dealt with by due diligence), the solution and under lying investments is the key !

    For example I very rarely almost never invest in “provider” funds they are just the conduit/umbrella (if you will) for the investment and funds of choice !

  4. For example, highlighting objectives that were not explored or raised by the client doesn’t help explain why a particular recommendation is suitable.”

    Unfortunately, whilst FoS continue to operate under an ‘inquisitorial remit’, short suitability reports that only focus on why a particular product / service has been recommended will not work.

  5. I don’t think it is just suitability letter length that is the issue, but how complex annadvice process needs to be? Can you accept information given by a client or do you have to request evidence, is full cash flow anlyisis mandated requirement or can advisor accept what customer says they want, can customers choose what they are advised on and limit the service/budget, can experienced consumers decide to self-invest using a platform and jus ask for advice on best tax wrapper? Can a customer decide they want to have more control of pension funds and just ask for advice on best pension wrapper without having to HAVE to have advice on ceding scheme, can a customer be involved in deciding on their own objectives or must an advisor only recommend to their needs as they see them, I can think of numerous examples where consumers are being forced to take full advice when all they want is to supplement their own decisions with extra help? I have worked with some networks who are particularly cautious and the advice process is excessively onerous and complex and therefore costly- mainly because they feel they have to protect them self against FOS decisions in the future- so it is t jut about excessive caution in the suitability letter but in the advice process in its entirety- could do with APFA getting some clarity on it all? Please

  6. Nicholas Pleasure 28th September 2016 at 3:35 pm

    This is all about liability when things go wrong. For the FCA to have a go about Suitability Letters is just wasting everybody’s time if they don’t first resolve the many liability issues that IFA’s face, particularly a FOS that sits outside of the law and had its own interpretation of the rules.

    Until that day, the IFA firm will use the suitability letter to protect itself, as it is really the only defence that remains.

  7. @ Jane Hodges; “consumers are being forced totake full advice when all they want is to supplement their own decisions with a little help.”? Just a minute, I have a good idea what’s wrong with my car and I’ll justpop down to the dealers garage and ask them to confirm what I think, help me a little bit where I am wrong or don’t know the problem, never mind the answer, and use the tools in their garage to fix it. I will of course ‘buy them a drink’ for their trouble and if it goes wrong sue the hell out of them.
    A Real Example – Client A – no, its ok I’ll do it myself with my Life Company Provider, Client B, yes I wil take and pay for professional independent advice. Client A, average return after 2 years – 1.3%, Client B – 8%. On a portfolio of £342,000 were my total fees of approx £10,900 expensive? Ask Client B. Oh, and I also got the Client £5,000 in tax relief. We have an ongoing relationship taht will continue to benefit the Client and the spouse and the beneficiaries.

  8. Based on my experience of interviewing countless IFAs and financial advisers over the past 26 years, the FCA is at last addressing a fundamental problem. IFAs often want to charge as much as other professionals such as solicitors and accountants – but too many do not share the same desire to provide their clients with a professional service. If that service consists of returning to the office with a completed pro-forma fact-find and handing it on to a ‘para-planner’ to feed into a computer, then to fill in the gaps and product details on a 35 age pro-forma ‘report’ then how is that worth the £000s the client is expected to pay for it? A professional service means the adviser himself will sit down, think about his client’s situation, objectives and the surrounding background – then write an individual report which addresses the client’s personal situation, needs, objectives and attitudes. Clarity is essential to impart understanding. To be prepared properly such reports have to be dealt with individually. When did anybody receive advice on a complex matter from a solicitor which consisted of little more than a pro-forma letter with personalised insertions and a solution at the end? Too many advisers are lazy – seeing report writing as something that has to be done to satisfy ‘compliance’, when in reality all truly professional advice should be delivered in writing. How many are still issuing ‘on-the-spot’ prescriptions and application forms, then following up with standardised ‘reports’ prepared by their ‘para-printers’? What is remarkable is that clients are still willing to accept a bill for 35 pages of standardised, often appallingly written twaddle, which they will not read. Increasingly, this will not protect careless organisations from the FOS either – the FCA is correct to insist that ‘advice’ is more than a para-planner punching information into a computer. Of course, this FCA approach may conflict with the advent of ‘robo-advice’ which will be fraught with danger for all participants – clients and providers alike. A distinction will need to be made between the provision of information and the offer/provision of ‘advice’.

  9. A summary of the SR is also required so that the client can’t claim at a later date that it [the SR] was so voluminous and complicated that it was beyond the wit of any lay person to comprehend. The FOS has upheld a number of complaints on this basis.

  10. I would welcome shorter Suitability Reports provided I could trust that they protect me and our firm. My view is that the current Suitability Report length is derived from the fact that firms don’t want to be sued in the future and they want to protect their interests and liabilities as well as advise people. I think part of this culture lies at the door of compliance firms and networks, who seek to embellish the rules so as to be ‘belt and braces’.

    Like others have noted here, I don’t believe that the FCA is the issue with respect to Suitability Reports. The risk lies more in the interpretation of the FOS, which cannot be predicted and is indeed unpredictable, which is a concern because until they can be trusted to follow a similar adoption, advisers will continue to document war and peace in order to cover their backsides. Therefore, the root cause of this issue hasn’t been addressed and I suggest that longer-than-desired Suitability Reports will continue.

    The issue of having to provide a report altogether should also be looked at in certain circumstances. Take for example COBS 9.4.1 which says that when a client sells all or part of a collective investment scheme, a Suitability Report should be issued where a personal recommendation has been made. I talked to the FOS technical line about this. I concluded that FOS may or may not interpret that a personal recommendation has been made where the firm facilitates the sale on behalf of the client. How, then, is a firm to proceed? Some providers won’t allow clients to sell down their investments without the adviser undertaking this, potentially implicating the adviser, when in fact they may only be undertaking a client’s wishes. Where this interacts with the insistent client rules, I don’t know. Who’s going to pay for the Suitability Report? Will client’s realistically pay for advice to make a simple withdrawal? I don’t think so.

    With the other significant disclosure documentation that we have to provide the clients such as illustrations and Key Features Documents (some of these can be over 60 pages long) as well as KIIDs, the disclosure provided to clients is still significant and whilst a shorter Suitability Report may go some way to reducing paper, I don’t think it resolves the issue with the sheer volume of paperwork we are obliged to provide clients.

  11. So APFA will be talkiing with the FCA and FOS about this?
    My first question however is WHO at APFA?
    Will an adviser be involved or just quangocrats from APFA?

  12. On a side issue (but I think it is relevant) people bang on about us being a profession rather than a industry.

    Probably more so from the FCA; the very people who don’t or won’t let us be a profession, you see, all the other professions are extended the courtesy of being governed by English law, we however are not…… we get unlimited liability and FOS !

    This is highlighted very well in this article and posts…….. suitability reports are no so far removed from being a client document, to one of protection from the very people who rule us and judge us….. the “Lynch Mob” (if you will) seriously, they are no better than this, a blood thirsty baying mob, all they want to do is string you up from the nearest tree as an example to the rest !

    And little wonder why the claims culture against us is a run away train…….we are ruled by idiots !

    Profession ?

    Nah ………..sorry

  13. Why do people keep wishing to compare us to others such as Solicitors and Accountants, as if they hold the only key to being PROFESSIONAL. Please, most solicitors use a process and template to complete their business, the difference being, they know they are 95% protected, as it is law and precedence have been made. Accountants take the figures provided, put them through a program and complete your HMRC return, but the return is wrong, its down to the client not them. As for on going service from these professionals, in the main what on going service, its mainly complete the business and that’s it. These professions have very little knowledge of what an advisers does, we on the other hand know a lot about there professions. So please stop and think about how we want to develop, not adopt someone else’s broken system.

    As I have stated in the article for me the issue is legal, the lack of clarity, the lack of what is required ,what statements and issues have to be explained to comply with the LAW. Without legal requirements and agreement, ANY lawyer can and will pull you apart. An example being “Mr client did not understand that if he spent all the pension monies, he would not receive and income”. This was put forward in a high court as this was not written within the suitability letter. The client had already complained to the FOS and lost re the tax charge, that was in the suitability letter. The adviser had advised him not to do take the funds in one lump sum, so actually had done his job correctly, only to face a court of LAW.

    This is why Suitability Letters are becoming so long winded and complicated.

    • I agree Martin , which is why we’ve been recording meetings since 2007 as it is a fly on the wall demonstration of intent, tone of voice, context and understanding of both adviser & client.

  14. Trevor Harrington 1st October 2016 at 9:47 am

    If you are selling a product, all-be-it to a repeating customer, then you will need a suitability report of the depth and nature being discussed above. I should also say that there is nothing wrong with that, providing that is what your intention is, and the truth of your real function is reflected in your customer service proposition.

    In effect, you are using your suitability report, and your existing relationship with a previous customer, however tenuous that may be, in order to repeat sell. As I have said – there is nothing wrong with that at all.

    Alternatively, if you are turning your customer into a proper client, through regular meetings, a continuously growing relationship, and a deep knowledge of, and responsibility for, the client, recorded through an in depth client reporting system which covers a whole host of financial subjects … then your suitability report at the point of sale will be less than one page.

    Customer or client ?

  15. I don’t know why anyone (including me) is bothering to post here. Are the FCA or the FOS likely to take a scrap of notice of anything that APFA might have to say about anything? Bearing in mind the way in which the FCA shamelessly and humiliatingly strung APFA along over the issue of the longstop, experience tells us not.

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