FCA readying discussion paper on shorter suitability reports

Responding to questions during a panel session at Distribution Technology’s annual conference yesterday (4 March), technical specialist Rory Percival told the audience of advisers to “watch this space” when asked for guidance to help alleviate the “insidious expansion of suitability reports”.

His comments come in the wake of the revelation at an FTAdviser retirement conference last week, where during an audience Q&A the regulator’s director of policy David Geale said a discussion paper would shortly be published on the issue, focusing on product disclosure.

Mr Geale had cited the case of a bank which has, working with the FCA, produced a four-page report for consumers on a new product, with all regulatory warnings adequately detailed on “one side of A4 paper”.

He added the paper would consider alternative ways to deliver the information contained in reports, citing the example of former US president Ronald Reagan’s use of video for briefings instead of printed reports.

“If it’s good enough for the president of the United States, it’s good enough for us,” Mr Geale said.

During his discussion, Mr Percival was pressed on perceived inconsistencies between what is expected of advisers by the regulator and how this can be later interpreted by the ombudsman when adjudicating cases made by clients.

Mr Percival broadly rejected the complaints, stating: “We are often told by advisers that it is all well and good us saying that suitability reports should be shorter, but we have to put all the information in them on account of the ombudsman.

“Frankly, I don’t buy this. I don’t 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.”

He backed shorter and more concise documents, reiterating previous comments that shorter reports based on more personalised information would be easier for consumers to understand.

Mr Geale had also stated in the wake of strong adviser complaints over the ombudsman that the City watchdog works closely with the Fos and they have struggled to find any such cases that “looked strange”.

The rest of the assembled panel at the DT conference also weighed in on the issue of suitability documents, with Simplybiz’s joint managing director Neil Stevens commenting that he tends to look at the reports as the last step in summarising what is a “good advice journey”.

Towergate Financial Group’s chief executive Warren Page admitted that given the gradual build-up of regulatory updates, documents less than 10 or 11 pages were a “good outcome”, adding that his firm is looking for feedback on client understanding to try to make them shorter and more relevant.

At a previous conference, Mr Percival explained that ensuring personalised objectives are documented in suitability reports through mechanisms such as free text input was the “best defence” against regulatory action.

This time round he focused more on concerns around risk profiling, breaking it down into three main areas where the FCA had identified room for improvement.

The first was on risk descriptions, specifically how they are categorised and discussed with clients, with Mr Percival stating that he has seen examples that have been poor, with vague and unquantifiable risks given.

Secondly, explanations around capacity for loss, an area where very few advisory firms were looking at before the regulator’s guidance, has seen “huge steps forward” since then.

Finally, however, Mr Percival said that peoples’ knowledge and experience of investment was something that must be looked at by advisers.

He said: “It’s often forgotten or asked, but not then taken into account when recommendations are made and then communicated to clients, which they then don’t understand.”

peter.walker@ft.com

Additional reporting by Ashley Wassall