I recently read Joseph Heller’s searing social parody Catch-22. It is as relevant now as it was when it was published in 1961: one of those books that establishes a principle so profound you begin to see its relevance everywhere.
In particular I think it resonates in an area that sits squarely within my professional purview - and which judging by the strong reader reaction to a number of stories recently is currently exercising the minds of advisers.
I’m talking - what else? - about adviser suitability reports.
We carried a story this week based on recent comments from Financial Conduct Authority bigwigs David Geale and Rory Percival, lamenting the often lengthy, impenetrable nature of the documents currently prepared for consumers and hinting at forthcoming attempts to help slim them down.
As is typical of such stories, readers were in the main unmoved by the regulator’s overtures. In fact, the response was largely one of indignant anger at the need for regulatory intervention to solve a problem many believe excessive regulation to have caused in the first instance.
Of course, I have sympathy for advisers’ position. Bound to comply with an ever-expanding rulebook, but at the mercy of complaints for the rest of your lives (let alone careers) to claims through the ombudsman, for which there is no time bar and which is required only to ‘take account’ of the very rules you are obliged to operate within.
Paradoxically the exponential expansion of reports to defend against future claims in fact renders them meaningless as a defenceThe FCA says it does not believe ombudsman adjudicators make “strange” decisions - and has suggested advisers take up such claims with the service itself. As I said last week, I think wherever you sit on this issue, we can all agree something needs to be done.
But that does not mean the regulator is not bang on the money. In fact, just as Heller’s central character Yossarian can only end his endless cycle of missions by demonstrating his insanity, which in turn only serves to prove his sound mind; so paradoxically the exponential expansion of reports to defend against future claims in fact renders them meaningless as a defence.
In fact, I would contend the sort of compliance-orientated reports being produced at the moment to protect advisers actually leaves them more vulnerable.
I am reminded of a case we highlighted almost two years’ ago, in which an advice firm lost a claim over a transaction that had been processed as ‘execution-only’. Essentially, the adjudicator ruled that the client would have been under the impression they had received advice, whatever the documentation said.
I can foresee other similar situations with complex investments or riskier annuity alternatives under the new pension freedoms, where claims are subsequently submitted over losses that were slavishly forewarned in suitability report caveats, but which go against the adviser anyway.
In many cases this will be right. With suitability reports running frequently to 40 and 50 pages, we all know they are not read; just as none of us reads the reams of documentation to which we virtually ‘sign’ when we buy products or order tickets online.
Essentially: is it fair that consumers be expected to read and fully understand the deluge of dense, technical jargon which is designed, as Mr Percival pointed out, to protect the firm and not inform the client? Mainstream investors will have gone to an adviser precisely to avoid having to wade through this quagmire.
Mr Percival went on to say that he did not see “why a suitability report that is personalised and more likely to be read by the client means you stand less of a chance defending a complaint with Fos”. Truer words were never spoken.
All of this is not to say you’re wrong to be worried about the Fos. It is simply to explain that while documentation handed to clients is so far removed from their real world understanding, we cannot expect decisions to pay it any heed.
These reports are meant to bridge the divide between the arcane world of financial services and the reality of client decisions. That is the objective towards which we must strive - and Mr Geale’s comments, including that we should not necessarily be limited to the printed word, were encouraging.
So FCA, over to you.
ashley.wassall@ft.com
