Regulation  

FCA launches suitability probe into hundreds of advisers

FCA launches suitability probe into hundreds of advisers

Over 700 advice firms have been contacted by the Financial Conduct Authority alerting them to its imminent intention to request and review their suitability reports.

The regulator sent letters last week informing firms it will be reviewing a sample of reports as part of ongoing supervisory work in the intermediary sector.

Businesses were chosen from a “statistically representative sample” of the market, according to the FCA, with about 500 smaller firms having to submit one suitability report, while the remaining larger firms will have to submit two.

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The measures were featured in the FCA’s 2016-17 business plan, within work to make sure “advice is of appropriate quality and suitable for consumers’ needs”.

The regulator has also promised to consult with representatives from the advice profession over how to make suitability reports work better for advisers and clients.

The Financial Advice Market Review’s final report stated there was “scope to improve the quality of, and shorten the time spent on, suitability reports and make them more accessible for consumers.”, recommending the regulator should work on reducing their length and the time firms spend preparing them.

FAMR’s proposals around ‘streamlined advice’ limited to specific consumer needs also pushed for a simplification of suitability assessment.

Existing FCA rules require advisers to put the following in suitability reports:

Specification of the client’s demands and needs.
Explanation of why the firm has concluded the recommended transaction is suitable, with regard to information provided by the client.
Discussion of any possible disadvantages of the transaction for the client.

The FCA has stated that existing rules allow firms to carry out a proportionate fact find when service is narrowed to a single consumer need, but a lack of clarity has meant many have taken a ‘one size fits all’ approach and carried out a full fact find.

Kevin Croker, an IFA at Cheetham Jackson, responded that their suitability letters are tailored to clients needs and a shorter version is used for the areas where advice is provided.

“We still complete a full fact find and then deal with the areas of financial planning that have been agreed upon by the client that they want to deal with.

“Identified shortfalls are stated in the fact find and suitability letter to outline that it is an area to be addressed, but this has been declined,” he explained, adding that the fact find and suitability letters are then signed by the client.

peter.walker@ft.com