Suitability reports and the FCA

As recently reported, the FCA is writing to around 700 advice firms ahead of a supervision exercise focusing on the suitability of advice.

The regulator will collect over 1,000 client files in total as part of the exercise, with file requests mainly targeted at 500 smaller firms. Larger firms will have to provide a greater number of files, which should reflect the business’s market share.

File reviews are expected to centre around assessing suitability, including copies of suitability reports and the way firms document their investment and research processes.

Initial commentary suggested the FCA would follow this up with some guidance on best practice in suitability reports, although this was subsequently quashed. Their stance in the past has been quite firmly against being too prescriptive in case it was taken with a tick box mentality.

Instead, they have reiterated previous guidance, and suggestions of good practice they have seen. These were covered in detail at the FCA Positive Compliance days, which we attended and updated our reports accordingly. Some of the key themes to emerge from this were:

• Keeping reports as client friendly as can be. This means making them visually engaging where possible; using charts, colours and images instead of large blocks of text. In our experience, this is tricky to do first time round, but once you have created these images, they can be used in future reports to replace text, with no additional time needed. The use of colour and images can make a huge difference.

• The use of appendices. The FCA has been pretty clear that in the main body they want to see; objectives, what is being recommended and why, potential disadvantages and costs. Everything else can be elaborated on in the appendices.

• Information not relevant to the client should not be included in the report. This sounds obvious, but we still see all risk descriptions being included, not just the client appropriate one, or all products ruled out being detailed. These are not required. If you currently include these and are looking for a simple way to streamline your reports, this is your quick win!

• The use of a Glossary was highly recommended by the FCA. Another way to take out large blocks of text, place into a separate document that the client can refer to if interested and keep the flow of the main report much simpler to follow.

• Consistency is a key theme in the FCAs review of firms; they have always said they would expect a client seeing two different advisers at the same firm to have broadly the same experience. This extends to the suitability reports, and centralising your approach to this will mean that whether the adviser or a paraplanner writes the report, the output and topics covered will remain the same.

This is a quick overview of some of the key tips we have taken from the regulator recently. If you are struggling to make your templates reflect this, or even to create a cohesive set of templates to use in house, we may just have the solution for you! We will be launching something new next week, so watch this space….

Share this post

You might also be interested in...

PS News

Conducting R(ESG)Search

As a paraplanner, there are a number of aspects you need to think about when it comes to ESG investments. Grant Callaghan, Paraplanning Techspert, Para-Sols,

Read More »
PS News

The importance of being admin

Financial administrators, client support, client liaison, parassistant, admin assistant, parapartner… whatever the job title, there’s no doubt that administrators are an integral part of any

Read More »

Hello. Hey. Hi.

Welcome to The Verve Community

Here you can join in the con-verve-sation, (geddit?) and network with peers from across the financial services industry, sharing knowledge and best practice.

Download our app on Apple, Android or use our web version using the links below.