Suitability reports should not sacrifice clear communication to clients in order to cover the adviser’s complaint risk, Apfa has said.
In a new guidance note on suitability reports, the adviser trade body urges planners to only write reports as long as is needed to address the client’s needs and objectives and make them aware of the key risks involved.
The guidance says: “The primary purpose of a suitability report is to explain to the client why you believe your recommendation is suitable given their needs and objectives and highlighting any risks associated with the recommended course of action. Focusing on this is in itself the best way to mitigate risk in terms of possible future complaints. However, the balance of the narrative should not be unduly weighted to risk mitigation which could distort the tone and the purpose of what is a valuable client communication.”
If advisers do use some kind of template, Apfa says this should only ensure key points are covered and leave room for personalisation, for example an area specifically for soft fact recording.
Apfa recommends “layering” information by placing less important points in an annex, but reminds advisers to include the most important information like costs and risks in the early pages.
The FCA does not require clients to sign off on suitability reports, Apfa notes.
From its discussions with the regulator, Apfa says it has now received clarification that objectives that were explored but not met by the recommendation should be highlighted, but that advisers need not list further possible objectives.
Apfa senior policy adviser Caroline Escott says: “We still believe that there is more the government and regulator could do to encourage advisers to produce more concise suitability reports. One such step could be to prune the number of different rules and regulations covering disclosure, although we recognise that many of these requirements come from European directives and regulations”
Apfa’s suitability report checklist
Before you send a suitability report to a client, check that it does the following:
- Contains a summary of the most important information in first two pages.
- Explains reasons for the recommendation of a product or investment with reference to needs and objectives.
- Highlights the key risks associated with the recommendation.
- Is tailored as far as possible to the client throughout e.g. uses customer own words.
- Expresses costs and charges in cash and percentage terms.
- Signposts clearly to standardised risk warnings and disclosures placed elsewhere.
- Avoids jargon wherever possible.
- Uses easily read font and contains white space.
- Has a clear logic which is easy to follow.
- Uses colour, bold text and boxes where relevant.