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PFS Conference: Suitability letters are failing to meet standards

Law firm CMS Cameron McKenna has warned advisers that their suitability reports are failing to meet FSA standards, which could open firms up to the risk of regulatory action.

Speaking at the Personal Finance Society annual conference in Coventry today, CMS Cameron McKenna partner Simon Morris said he has seen many instances where suitability reports have not been up to scratch while representing advisers who have been visited by the FSA.

He said: “Advisers need to ask themselves whether they have the systems and controls in place to ensure suitability in every incident.”

Morris told delegates that he had come across countless cases where the FSA has challenged a firm following an Arrow visit or as part of a thematic review and found that suitability documents across the sample of client files were not adequate.

He said: “I have looked at suitability report after suitability report and it does not properly describe why that sale was appropriate for each customer’s requirements and why other products were discounted.

“I look at a file and I do not see evidence of suitability and that is what the FSA challenges. And if and when the FSA requires you to do a retrospective review of 2,000 cases that is when the FSA starts taking disciplinary action because it also shows you do not have the right systems and controls in place.”



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There are 10 comments at the moment, we would love to hear your opinion too.

  1. Another reason to be part of a big group, appointed rep.
    I would bet it is businesses that are FSA direct by chance!!!.

  2. Lets double the length of them! That’s the answer! My clients will LOVE a 40 page letter.

  3. The Lib Dems are quoted earlier today as saying

    “The regulatory requirements on IFAs are so great, the cost of giving advice is so great and I cannot image why anyone would want to do it. It just looks to me really, really hard.”


    “I do not think my childen would want to go through the appalling business of laying out all their details and taking hours to go through everything the way we did when we were buying financial services products.

    Then you read what this Law Firm are saying and it all starts to make sense.

    It is now almost commercially & legally impossible to be able to satisfy the Regulators increasingly complex ADVICE process and it will undoubtedly get harder to do so in the future.

    Perhaps the way forward really is to have simple basic products, let people work it out for themselves and buy what they think they need on line.

    Its all about unburdening yourslf of liability, a liability created by the FSA and implemented by FOS.

    The only certain way of accomlishing that goal is to side step advice and run a volume execution only model which most IFAs are not geared to do.

    After nearly 30 years in this industry, its a sad conclusion to have now reached.

  4. Lets face it the FSA have made the rules far to difficult for the average person to understand. gone are the days when we could refer to the illustration or the policy booklet. The suitability letter is merely a get out of jail card, in desparation we put as much crap in as possible knowing full well its way over the top and the clients hasnt got a hope in hell of understanding it. Why because the FSA will not provide and guidance on what such a letter should look like. The FSA have told me on various occasions that a suitability letter should be no more that 4 pages long—-how this translates to a pension transfer letter is beyond belief.

    All the Advisers are trying to do is cover their own backsides. Advisers are constantly sitting on a knife edge.

  5. Agree with Ian ~ as members of a network, the files on a proportion of all our business transactions are called up to the QC department and gone through with a fine-toothed comb which helps keep us on our toes.

    Then again, with a simple checklist of all the subject areas that suitability letters are supposed to cover, it isn’t really very hard to do the job properly. Frustratingly, though, I always used to experience great difficulties getting my consultants to bother matching my guidance notes with their letters. Instead, all they’d want to do was construct them by merely making a few adaptations here and there to a previous letter done for a different client. What with everything constantly changing, such a methodology simply wasn’t good enough.

    So this does seem to be a bona fide issue of systems and controls.

  6. Fraser Brydon - IFA 21st September 2010 at 2:35 pm

    first came the fact find on the back of a fag packet, then after many years the 30 page report which is full of gumf the clients is not interested in, then the regulator rules based on the rear view mirror principle, i.e. lets judge after the event and tuff if you don’t agree with me, even tho the client accepts the risk…ok clever people give us a universal style in less than 10 pages and i’ll pay for it…..your time starts now…

  7. He said: “Advisers need to ask themselves whether they have the systems and controls in place to ensure suitability in every incident.”

    Every incident ? That is impossible to achieve no other advice industry achieves that, they all have huge caveats and disclaimers because they know that all eventualities cannot be covered.

  8. I’m afraid that the FSA isn’t competent to issue guidance in the form of example ‘suitability letters’. It’s an outrage that they are in a position to make judgements on those issued by others and that this situation has been allowed for so long.

    Solicitors are very good at conjuring issues that will provide business for themselves, I don’t trust them any more than I do the FSA.

  9. I don’t think Ian 2.07 pm understands just how vunerable he is as part of a Network. They offer him no protection at all. Just for starters go read your PI policy and look for a subrogation clause?

  10. Simon…you obviously havent needed support then! I have had a review of business(pension transfers) initiated by the FSA. If I was not part of a Network I would have had to pay for the 48 cases to be reviewed myself(@ £70 PER CASE?) My Network paid for the privilege and guess what?….only two cases were classed as unclear…after challenges by our Networks monitoring dept. So I guess it depends on the quality of your Network…..

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