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Who is right on short suitability letters?

Who is right on short suitability letters?

Recently, Rory Percival, technical specialist at FCA, and my good friend Phil Young, director at the compliance firm 360 have been on a campaign to convince advisers to shorten their suitability reports (SRs). I agree with their good intentions. Clients don’t read the information financial advisers offer to them and we need as an industry to improve this area.

COBS 9.4 - the notorious, suitability letter section in the FCA Conduct of Business handbook - is an irritation for many financial advisers. Paperwork for many firms is now at epic proportions, together with key features documents, KIIDS, terms of business and a suitability report, we need the local lumberjack to fell a dozen trees before a client can take out a new investment savings account.

COBS 9.4.7 - which deals with what should go into an SR - is only 47 words long (I did count them) and on this a whole compliance and paraplanning industry has been built. It says the SR should contain the needs of the client, why the recommendation is suitable and an explanation of any disadvantages. I would agree with Mr Percival and Mr Young, with a limited number of points how on earth did we get to 150-page reports?

In my view, it is to cover off complaints. Encouraged by compliance departments and consultants, advisers have bloated their SRs with pages of gibberish to cover themselves should the worst happen. Networks are notorious for this, their SRs are posterior-covering at Olympic gold medal standard.

Mr Percival & Mr Young seem to think we don’t need to include all this gobbledygook in the SR to cover ourselves; it could be placed in an appendix and sections like ‘alternative options’ could be scrapped altogether.

Removing alternative options appears suicidal if a complaint should occur, if you were advising my dad on his retirement options and recommended an annuity, I would want to see in the SR what else you’ve considered please. But Mr Percival says it’s a myth this section needs to be included.

I would ask both of them to read again (it’s below) the next section in COBS 9.4 - COBS 9.4.8, which is the shortest (18 words) cover-all-bases, get out clause, you will ever see. It states that, “A firm should give the client such details as are appropriate according to the complexity of the transaction.”

It’s like somebody at the FCA started writing out what should go into and SR, went for cigarette, got bored and dropped in a sentence to place all the responsibility back on the advice firm.

Needs? Check. Why they need it? Done that.s Disadvantages? Good to go!

What else? Not sure. I know, whatever else is appropriate. It is farcical. Who wrote it? My money is on a lawyer.

I would like to agree with both Rory Percival and Phil Young; their ideas are sound based on COBS 9.4.7. But throw in the very, very vague COBS 9.4.8 and we have problem. Until then, I think I am safer sticking with 100 pages in Arial 14 point.

Richard Bishop is a lecturer in financial services at Coventry University College and a practicing regulated financial adviser.