A common misconception is that the suitability report has to ‘round up’ the whole process, discussions and background information that has occurred to date. It doesn’t. It simply forms part of the process of telling the story and, from a compliance perspective, will be read in conjunction with the rest of the data and information contained within the file.
This is good news. It means we can legitimately start taking ‘superfluous’ information out of the suitability report and make it shorter and more client-friendly.
Based on the regulators Principle 9 (customers: relationships of trust) “A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgement.”
In conjunction to that, and by extension, COBS 9.2.1 R states;
“(1) A firm must take reasonable steps to ensure that a personal recommendation, or a decision to trade, is suitable for its client.
(2) When making the personal recommendation or managing his investments, the firm must obtain the necessary information regarding the client’s:
(a) knowledge and experience in the investment field relevant to the specific type of designated investment or service;
(b) financial situation; and
(c) investment objectives;
so as to enable the firm to make the recommendation, or take the decision, which is suitable for him.”
More recently, the Financial Ombudsman Service (FOS) has reiterated its advice to IFA’s to make suitability reports as tailored and personalised to the client as possible.
Richard Thompson, FOS principal ombudsman, speaking at the Money Marketing Interactive conference in May 2017, outlined how advisers should present a defence at the FOS when faced with a complaint. He said: “The more you can do to personalise and tailor that documentation, that suitability report around the customer and their circumstances, the better placed you will be to defend in the event that someone does wish to bring a complaint.”
While he admitted that “standard documentation always has its place” to help clarity or understanding for consumers, it also had its “limitations”.
Compliance Consultant has been championing the reduction of Suitability Report Length and rationalising the content to flow better and be more relevant. Founder and CEO of Compliance Consultant, Lee Werrell, said that
“Members of Networks and those using standardised ‘off-the-shelf’ compliance providers are given a bland, comprehensive and rigid suitability report template, based on the ancient ‘tied-agent’ model of command and control. This is so out of date in today’s relationship selling methodology that all the report does is take up the advisers time and contains mainly dross that used to be considered as ‘covering one’s backside’.”
Further to that, Werrell added “If you can explore and discuss the various elements of COBS9 with the client, and record their own words, you can replay it in the Suitability Report as further evidence of the client’s needs. From the fact find, file notes and through to the suitability report, there should be a flowing story; a story of demands, needs and satisfaction.”
At the conference, Thompson added that using the client’s own words in documentation was the “gold standard” when it came to best practice. He said: “It helps when we can see things in the advisers own words…The gold standard is the clients own words from what they understood then.” He also urged advisers to steer clear of jargon-heavy product information.
Compliance Consultant can conduct an audit of your firm and provide a comprehensive report setting out the work into the general areas which the FCA often express interest and which generate most concerns, incorporating the latest hotspots.
The scope of the work required by FCA visits, are, in our view, extensive and required to be delivered in a short space of time. Having all the evidence readily available, including ongoing action plans and risk identification is vital. The Compliance Consultant team is qualified to undertake this work has experience of working with many financial institutions and regulators, ranging from working at board level, senior management, line managers and directly supervising sales personnel.Call us on 020 3815 7939 for details, watch the video at https://youtu.be/z_hSI9tLCVI or go to http://wp.me/p7OMfd-vT.
An additional service we can provide is the relevant rules mapping from the FCA Handbook to your firm. Ask us for details, or go to the website via this link http://wp.me/p7OMfd-A2.
Compliance Consultant – “Making Compliance Work!”
Call us on 020 3815 7939