Good and bad practice for due diligence is not exclusive to one particular type of advice firm, the Financial Conduct Authority’s Linda Woodall has said.
The FCA’s director of life insurance and financial advice was speaking after the regulator published a thematic review on this issue.
The review found firms were generally able to demonstrate some good practice on due diligence, but it found many did not show consistently good practice across all products and services.
Among the problems uncovered by the FCA were firms where staff felt unable to question the status quo, and where advisers considered that the service they received from a platform to be more important than the service their clients received.
The review also uncovered some advisers retro-fitting due diligence to justify their choices.
When asked whether there was a particular type of advice business that was failing to carry out proper due diligence, Ms Woodall said the study showed that good practice and bad practice were present as much among small firms and big firms, and among directly authorised firms and network members.
She said: “We concluded that firms of varying shapes and sizes were capable of undertaking due diligence.
“We saw some good practice in terms of due diligence and some things we would like to improve. They were reasonably spread. It is not really a size issue.”
Ms Woodall added that the FCA appreciated that due diligence might look different depending on the situation.
She said: “We are not saying one size fits all. Where you are dealing with familiar products, the nature of due diligence might be somewhat different to where you are going into a field you are less familiar with.”
During the review, the FCA assessed 13 advice firms of different sizes and with a variety of propositions.
The FCA told three firms to make improvements in their research and due diligence process, and asked them to make an attestation that they have done so, signed by a senior individual.
Following further work, the regulator also told one firm to complete a past business review.
Rebecca Warren, distribution marketing manager at FE, said the issue of due diligence raised questions for providers as well as advisers.
Ms Warren said: “While there is a focus on advisers demonstrating due diligence adequately, product providers also need to work with the advisory industry in providing better fund data and improved reporting – the ultimate goal should be transparency. Only then will we see the kind of investment landscape that allows for proper due diligence and accurate assessment.”
