Three months after the FCA’s review of advice suitability, advisers are eagerly awaiting the regulator’s next moves.
Some have said they have already incorporated feedback received into their firms, while others are still looking for more clarity.
The FCA’s study found the vast majority of advisers had a clean bill of health on suitability but many failed to disclose charges in line with its rules.
The regulator first launched its review of more than 1,000 individual pieces of advice in April 2016. 93.1 per cent of the cases showed suitable advice, the FCA concluded in May, with 4.3 per cent giving unsuitable advice.
However, 41.7 per cent breached disclosure rules, in particular relating to costs, charges and the firm’s services. The FCA also found many suitability reports were too long and complex.
The regulator said the findings would help it communicate good and bad practice and focus its resources on firms and areas that pose the greatest consumer risk as it continues working on suitability. It plans to repeat the review in 2019 to ascertain what progress the sector has made following its current communications.
The FCA has now also finished writing letters to the 119 firms that challenged its findings on their files. So how much of this progress has filtered down to IFA action?
Some IFAs are already incorporating the findings into their businesses.
Highclere Financial Services director Alan Lakey says: “We are currently reviewing our processes. I expect the FCA to keep asking questions about disclosure, although it does seem to have an unhealthy focus on this while the rogues seem to carry on regardless. I believe the FCA’s main concern should be the appropriateness of the advice and that many of the rules and regulatory obligations are, in truth, superfluous to this.”
Blackstone Financial Management compliance officer James Lloyd says his firm has made a few minor tweaks as a result of the review but welcomes what guidelines the FCA has offered, which he says are “brilliant”.
Other advisers say the lessons they learned have caused them to renew their focus on particular aspects of their business.
Cervello Financial Planning director Chris Daems says: “We’re always focusing on how we can be a better business. For us, the big learn was to ensure that we always explain the soft facts behind the reasons for any specific recommendation and ensure that within our systems and processes our files continue to show that we’ve truly understood our clients’ needs.
“I think there will (as well as should) be a continued focus on disclosure. Ensuring consumers understand what and how they are paying for advice, as well as whether their advice is restricted or independent are important elements of continuing to improve the profession.”
The way forward
Others are still looking for more guidance, however, particularly on disclosure.
Carlson Wealth Management IFA Steve Carlson says: “The problem with the FCA’s disclosure requirements is that they assume all cases will take exactly the same amount of time when this is not always the case. Some cases are more complex than others, and sometimes you don’t know until you are half way through a case exactly how long it will take.
“By standardising prices at initial disclosure, we are forced to adopt a cross subsidy approach where the simple cases are being charged more to cross subsidise the more complex cases that take longer. It’s a bit like an accountancy firm charging every business exactly the same amount of money to produce a set of accounts, or a solicitor charging every client exactly the same amount of money to take a case to trial.”
Daems says: “When it comes to clarity, both advisers and the FCA have a challenge. Often advisers want a clear and specific set of rules to follow to ensure they have clean files and the FCA can’t be definitive due to the subjective nature of advice and suitability. Therefore, the profession has a challenge.”
It is understood the FCA has still not taken enforcement action against any firms that failed on suitability or disclosure.
Daems says: “Without seeing any of the specific files it’s difficult to say whether the FCA should have been tougher. If it’s clear advice wasn’t correct and the motivation wasn’t in the client’s best interests then it could be argued that penalties should have been tougher.
“However I like to believe that most advisers want to do an excellent job and will be far more motivated with measures designed to encourage more compliant behaviours.”
Timeline: How the suitability review unfolded
April 2016: The FCA begins writing to 700 firms to request a year’s worth of recommendations
May 2016: 95 per cent of firms return files in time for deadline
February 2017: FCA begins sending firms individual feedback
March 2017: Money Marketing tips that the review will be critical of advisers’ disclosure
May 2017: FCA releases its final results
August 2017: FCA finishes writing to firms who had challenged the regulator’s findings
2017 and 2018: The FCA will communicate with advisers on what it has learned from the results
2019: The FCA will repeat the suitability review to see how advisers have kept up with new rules like Mifid II
In two weeks, you can hear from two senior staff at the FCA on suitability at the Money Marketing Interactive conference in Harrogate. Register for your free place here.