FCA: Free text in suitability docs ‘best defence against us’

FCA: Free text in suitability docs ‘best defence against us’

Ensuring personalised objectives are documented in suitability reports through mechanisms such as free text input is the “best defence” against regulatory action over centralised investment solutions, the Financial Conduct Authority said today (11 February).

Speaking at a Thesis Asset Management conference on investment risk and suitability, the FCA’s technical specialist Rory Percival warned about “individual suitability” around centralised investment propositions.

He also warned firms against using “default platform” options, especially if the firm wishes to retain independence.

Article continues after advert

Mr Percival said: “One of the areas of concern is that there is the potential for increased standardisation process to result in a lack of personalisation.

“There are a number of instances where we would have seen this potentially happening, so one area would be when we are looking at the files and seeing standard objectives across different clients and those objectives are solution-based rather than client-based.”

He added that the objectives might be things like people looking for an investment portfolio that is rebalanced on a regular basis or access to a wide range of funds to a platform.

“I would suggest those aren’t client objectives they are focused on the solution - that would be an area of concern.”

Mr Percival added that having “free text” in the fact-finder documents to give clients space for that extra level of detail, as well as removing the template objectives in suitability reports.

Standardisation is “good and efficient”, he commented, and the FCA does not have any “issues” with CIPs in that respect, but there needs to be a balance.

“We think there’s lots of benefits for the clients, but you need to have that balance to ensure that personalisation is involved and by having that personalisation you will also have the best defence against us.”

Generally, Mr Percival emphasised firm’s business models continue to be what the regulator is interested in.

“Are firms set up to provide clients with a good deal? And so if we come and see your firm this is likely to be an area we are going to ask you about. An example of this is what your proposition looks like is around the use of platforms.

“Now we’ve said in the past you should always think about whether your solution should be on a platform or off platform, but we don’t think the idea of having a default platform is the right approach.”

Previously, the regulator urged independent advisers to use more than one platform to ensure that all clients could have adequate choice. Its thematic review of the Retail Distribution Review stated that IFAs must consider off-platform investments in addition to the core range of products.

He also pointed out that if something costs more to the client “there needs to be a good reason for that”., donia.o’