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How short can you make a suitability report?

Advisers and the regulator have reached agreement that many suitability reports are too lengthy.

The longer the reports, the less enthusiastic clients become. In its suitability review earlier this year, the FCA found many suitability reports were too complex. But is it possible to make them shorter?

The FCA has provided a number of examples where suitability reports included superfluous information. However, it has been reluctant to say how long they should be.

The fear, as the regulator expressed at the Money Marketing Interactive conference last month, is that putting a minimum or optimum number of pages would give advisers a licence to produce reports to exactly this standard, regardless of the client’s circumstances.

That means advisers lean towards caution, including too much information rather than too little. According to the FCA’s rules, reports only have to include three things: clients’ demands and needs, why the solution is suitable to meet the objective, and the potential disadvantages. But at what point are each of these points satisfied?

Former FCA technical specialist Rory Percival says some stock sections can be removed and reports would still meet these requirements.

He says: “A lot of advisers have templated objectives, which don’t work for the client, regulator or ombudsman because they are so obviously templated. We see too many that say things like ‘you are looking to have your money managed by a discretionary manager’ in the objectives and then ‘I have recommended this discretionary manager’ in the recommendations. This is never a client’s objective.”

The disadvantages also need to be personalised, he says. “Instead of ‘the new solution may be more expensive, and investment performance may not offset costs’, it is better to say ‘the new solution is 0.5 per cent more expensive, but I believe it is still suitable because….’”

Percival says information on status and scope of service can also be stripped out, is better confined to the terms of engagement letter and does not need to be repeated in the suitability document.

He says: “Often we find that advisers have a lengthy paragraph repeating a lot of the factfind information. You are 52 years old, work as a civil engineer and have a wife and two children. Clients know that. There may be some client information you want to have because it gives more colour to the client objectives but you don’t need to repeat the factfind. There is also a tendency to include everything that the adviser hasn’t recommended. With the exception of stakeholder pensions, that isn’t necessary. Some advisers want to replicate their whole research process in the suitability report and that isn’t necessary.”

Similarly, Percival says, advisers can create guides to investments, defined benefit versus defined contribution, retirement income or inheritance tax planning and hand these to clients, rather than giving repeated disclosures in every suitability document.

In theory, stripping out this extraneous information should reduce the length of the suitability report. The problem, says Lee Robertson, chief executive officer of Investment Quorum, is that advisers are not simply satisfying the regulator. They must also satisfy their professional indemnity insurer, clients, the Financial Ombudsman Service, and – should the worst come to the worst – any lawyer who pores over the recommendations.

He says: “Our PI insurer, for example, is incredibly interested in our suitability  reports. They are often reacting to the money they have had to pay out in recent years and, as such, suitability has become a significant focus.”

Professional Partnerships IFA business consultant Gill Cardy says there remains a reluctance on the part of the FCA to accept that the demands of the FOS may be different. She says: “From a pure regulatory point of view, there are things that may not be necessary, but the FOS works to different standards. If a recommendation goes to a complaint, the client says the adviser made a recommendation and it isn’t written down, in the absence of specific evidence, the Ombudsman is likely to believe the client.”

She also believes the reality of modern financial planning makes vanilla suitability documents more difficult. In many cases, she says, they will be looking at many different scenarios and objectives. A client may want to sell their business at 50 and write a book, or spend more time with their family.

“We need to show we have tested a number of scenarios as part of a full lifestyle planning piece. This makes reports a lot longer.”

That said, Robertson believes there are ways to encourage clients to read suitability documents.

Investment Quorum has recently revised its suitability documents in consultation with their client advisory panel: “We strip out all the ‘non-essential’ bits into appendices. This would include all the regulatory blurb, all the risk warnings,” he adds. “We encourage clients to read it saying ‘don’t miss the appendix’, but we provide one short, sharp executive summary at the beginning, so clients can get the headlines. We also include colour, graphics and timelines to break up the written word.”

Cardy believes how the report is framed is important. She says: “If an adviser says ‘here is 97 pages of turgid regulatory information’, they probably won’t read it. It needs to be in plain English, formatted nicely and to be readable. I go through it with the client to encourage them to take control and responsibility for their finances. As such, it is not something I am forcing them to do, but a positive thing to help them understand what they are doing.”

The Mifid II requirement to record all calls may help evidence suitability. Rather than the suitability document as the only proof, there will be other records to support an adviser’s recommendation, allowing for shorter suitability documents in the longer term.

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Comments

There are 19 comments at the moment, we would love to hear your opinion too.

  1. Risk Warnings

    My understanding, whilst not being a requirement but more an example of good practice, is that risk warnings should be in the body of any report.

    Client Details

    Unless clients sign your fact find, what opportunity do they have to correct the information you hold unless you summarise it within the suitability report?

    Separate Documents

    I would love to see separate guides covering risk, investment proposition etc etc, but then are we making the documentation longer and the client less likely to read if we say, “if you want to know more about X please refer to Y”?

    I don’t know what the answer is, I just know it is a problem that needs addressing.

  2. … so that’s basically no real change, what the FCA believe is better, PI and FOS may not. Whilst the former has the power to revoke permissions and fine, for most decent practitioners, the reality is needing to defend advice against someone chancing their arm. The ones that most need to work on understanding is not the client, who in an age of litigation can always claim “I didn’t understand that”.

  3. Trevor Harrington 13th October 2017 at 11:57 am

    If your ongoing client service proposition is thorough and regular enough, then the “suitability report”, referring to a specific transaction need rarely be more than one page, and in the form of a simple letter.

    Ongoing notes on your client electronic data, concerning meetings and conversations, need only be referred to in the “suitability report” as “those notes in your last report”.

    Our ongoing reporting system, is a portfolio report every six months, including investment valuations and notes on meetings and conversations, and therefore our “suitability report” concerning a specific transaction is rarely more than a one page letter. That one page letter is itself generated from existing data on the electronic client file and a standard letter template – usually a five minute job.

    As a matter of interest, we also produce an annual client statement, showing all and total earnings on their account, including commissions, renewals and fees received in the preceding 12 months.

    Ongoing Adviser fees and renewals are there to fund the Adviser for this level of service. If, however, those ongoing Adviser fees are being used for the Managing Director’s car and holiday home, then you do have a funding problem for this level of client service, and you will almost certainly be a transactional led Adviser practice.

    • 1 page suitability report; I find this very hard to believe but am happy to be proved wrong.

      If it is short the content could be posted here as a reply.

      Can you cut and paste it here so we can all see the content and layout?

  4. Our firm’s compliance consultants recently took steps to introduce cut-down suitability letters, aiming to be more to the point.

    The new 4-page template is usually 6-10 pages by the time the relevant client-specific information (including 2 pages documenting our risk discussion) is added (including a summary of why we DIDN’T recommend a multitude of other solutions).

    We then add a 4-page appendix with risk warnings for each product (a phased drawdown SIPP is three products, so three appendices).

    We then add (or have already provided) a 20-page retirement options guide, providing clients with full details of all of the products we haven’t recommended.

    Then we enclose a full copy of the fact find to demonstrate to the client all of the information that we have taken into account (the same information that is included in the suitability report and meeting notes) – 20 pages.

    Then we enclose the KFD and personalised illustration (6 pages).

    And a replacement contract form, providing a summary of the cost comparison between the old contract(s) and recommended one (4 pages, and it’s a bug*er to complete).

    And the various application forms and transfer forms (say 8 pages).

    And fund fact sheets and KIIDs for each recommended fund (say 4 pages for 5 funds – 20 pages).

    So the suitability pack can contain 100+ pages of documentation, which usually results in the client throwing the pack at me shouting “Just tell me what to do.”

    The real advice is contained nowhere in this pack. It’s in the detailed, plain-English meeting notes that we prepare during the advice journey, containing a clear picture of the client’s circumstances and how they feel about our proposed options.

    I’ve tried the “executive summary” approach, but this is seen as diverting the client away from the other important documents in the pack.

    As an employed adviser, I have no choice but to follow this process. I risk receiving a poor RAG rating if the box-tickers in Compliance feel that I didn’t spend long enough explaining inflation-protection to an experienced economist….

    Too many poor RAGs and I’m restricted on what I can advise on until I’ve undergone product retraining (which, ironically, has nothing to do with the production of the suitability report).

  5. When I have had a regulatory visit the FSA staff were too lazy to look through the files. Therefore if one didn’t spell out the obvious in what was called a RWL (suitability report) they asked us to investigate the file with details when they had left to inspection. Can’t win, too much, too little. They don’t know themselves!

  6. Go to a proper stockbroker and this is usually never more than a couple of pages. Out of sheer funk concerning the regulator advisers blather on for pages. Hardly surprising when the Regulator uses daft phrases like ‘Demands and Needs’. Clents don’t (in my experience) demand anything at all. They need to save/invest for retirement, school fees, weddings etc. etc. And they would prefer to pay as little tax as possible. Attitude to risk can be covered in a half page of A4.

    Perhaps a revision of 1960’s O Level English might help authors to precis and paraphrase.

  7. Too many rule makers who have never done the job, and compliance departments who insist on overkill, particularly as mentioned on what you did not recommend, which could go on for pages.
    The fault lies with the complaints culture that exists, money for nothing, fuelled by greedy clients, lawyers and claims chasers alike, supported by FOS who assume guilt unless proved otherwise.

  8. Disappointing to see this article state that call recording ing is a MIFID requirement; for IFA’s it is not…

  9. My clients know I record the client meetings whcih demonstrate how we have ended up where we are (reasons why) and also what I have reccomended (suitability report)any client responses and variations to my original advice (amende suitability report to refelct rejcetd solutiosn by the client) and then what is provided to the client is the shorter report Rory and Harry refer to (oh and of course all the KFDs and KIIDs which are mandatory, but in PFD format). Actaul paper though limited.
    Lastly, if a client wants to have a go at me in the futur and they decide to go for the Al Capone option (i.e. complain ona technicality), they really shouldn’t have selected me to be their adviser in the first place as I would quite accept them putitng me out of business and then spend the rest of my and their lives doing everything legal to make theirs as bad.
    We all make mistakes… if we resolve them with tact, most clients are fully accepting of that and it should never need to get as far as the FOS. Under teh old complaint handling rules, ou coudl resolve it same day, no stastics. Now any expression of disatisfaction is a load of rollocks as that could include “I can’t get hold of you when I want you” and the answer could be, “Phil doesn’t take phoen calls when he’s in the loo, I am sorry”, but that is theoretically a recordable complaint!!!!!

  10. You ask 1,000 IFAs and you get as many answers. You ask an FSA, sorry FCA, regulator who is crab-like in existence (just like planning officers) and he/she deftly steps sideways. You ask the FOS and they will describe it as an unsuitability letter. One A4 should do it.

  11. Whittington Dick 14th October 2017 at 1:13 pm

    Agree with everyone’s comments here.

    Underlying it all, however, is, YET again, the FCA’s old “we can’t tell you how to run your business” edict, which stands forever solid, of course. Where is the joined up thinking from the Regulator offering guidance not just to advisory firms, but to FOS and the P.I. Insurers – where is the commonality of purpose? Where is the body charged with the umbrella oversight of the disparate bodies involved?

    Just look at the variety of approaches adopted by the different firm’s revealed by just the handful of responses to this article.

    The right hand doesn’t know what the left hand is doing. And is it any wonder, with 6 masters to satisfy – the client, your compliance team/network compliance regime, FOS, FCA ,P.I. Insurer and the Ambulance chasers, all of whom have differing perspectives?

    When you also bear in mind that any advisory firms “cluster of 6” will likely be different from each other to boot, you have an irresolvable quagmire; if you satisfy one, you dissatisfy the other.

    Mr Harrington’s approach appears sensible, yet I dread to think what his 6 masters could do with his firms approach under the prevailing parameters of of operation.

  12. SL’s are for the benefit of regulation, be that FCA, FOS, lets face it, they are the only one’s who consistently moan, they are to long, to short, missing this, missing that, you don’t need to include that… oh it goes on and on
    Not once (in my 27 years) has a client challenged or questioned my report.

    I still view and believe an SL is, and should be, a stand alone document, but when you have the likes of the FCA and FOS (to a degree) dancing on one toe then the other saying “we are principle based” oh hold on…no we are “prescriptive”… no no no wait we are a bit of both… and so it goes on, Christ on a bike, which way is the wind blowing ?

    One bit advice……. the content of a SL, is enough to free you or sentence you to death
    Being guilty or innocent, never enters the equation !

  13. As I’ve suggested before, perhaps the only solution is TWO SR’s, one a Full Monty edition and another summarising in bullet point format the key elements of the main one. That should (one would hope) deflect accusations that the main SR was so long as to be beyond the ability of any ordinary lay person to comprehend.

    Of course, this would push up still further the cost of the advice process (or rather the cost of documenting it) which the FCA claims to be keen to bring down. But how can anyone be surprised that advisers don’t want to leave out ANYTHING that might compromise their ability, years down the line, to defend against accusations that they omitted something claimed (probably by a CMC) to be crucial to the client’s agreement to proceed?

    The FCA has already stated unequivocally that “post-Brexit there’ll be no bonfire of regulation”, which is another way of saying that the ratchet only ever turns one way. That’s all that ratchets ever do.

    It’s all very well for Rory Percival to criticise the tendency [of advisers] to include [in their SR’s] everything that they haven’t recommended, but not doing so crassly overlooks the opportunity this would present for a CMC to seize upon this as a failure to set out all the alternative options, one of which the complainant would (of course) have chosen had he known about it.

    Advisers are between a rock and a hard place and merely shortening SR’s is no solution. They won’t do it.

    • Julian

      Perhaps then you might care to comment on if indeed you make the report long (and boring) it is axiomatic that clients lose the will to live and hardly read through it. So in fact the report isn’t for the client benefit, but for the adviser to CYA.

      Isn’t it better then to provide a succinct report with all the salient details presented in such a way that at least it is interesting to read, in the hope and expectation that the client will actually read it.

      Is that not more client focused and therefore in fact better compliance?

      • Whittington Dick 17th October 2017 at 3:44 pm

        It is, Harry, to the sensible, but we are dealing with FCA, FOS, P.I. etc. etc. and therefore ergo as they all have differing perspectives that move with the breeze, then the sensible is, sadly nothing more than a practical fantasy.

  14. I prefer an alternative title they are PCWAC letters
    Prevent client winning a complaint

    the longer and more complex they are the easier it is for a lawyer to find fault

    If we give the RIGHT advice then client won’t win

    But then again I had a complaint upheld by FOS not because of the advice given and documented but something client hadn’t complained about

    the 28 pages didn’t help one little bit

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