Adviser representatives have been meeting with regulators to put together guidance on creating suitability reports.
The Association of Professional Financial Advisers and the Personal Finance Society have been in talks on the issue of suitability reports with the Financial Conduct Authority and the Financial Ombudsman Service.
After meeting the regulator and ombudsman, Chris Hannant, director general of Apfa, said he could confirm the FCA was not eager to set out prescriptive rules for suitability reports.
He said: “We got some dummy reports to give to the FCA and asked for their thoughts and there were a couple of things they kept coming back to.
“One is that how you present it is as important as the content. The more accessible and clear it is the more the client is likely to engage with it.
“It has also got to be specific to the individual client, with things like ‘we are recommending X because you said you wanted Y’, making it clear that it is a personal recommendation.
“It was quite difficult to pin some of it down but that is reflective of the fact it has got to be tailored to the client.”
He added the FCA was not keen on reports that list every single option that would be available to the client to meet their needs and explain why certain products are not being recommended.
The FCA has flagged suitability reports as an area for improvement in its bid to make communications with clients more accessible.
It pointed to the fact that consumer understanding of the nature of advice and the way it charges was limited, while knowledge of the different types of advice was “poor”.
The regulator said it was working with Fos, Apfa and the PFS, which is also working on its own guidance on suitability reports.
Earlier this year the FCA contacted more than 700 firms to request and review their suitability reports but Mr Hannant said this was a separate piece of work by the regulator which would probably be completed next year.
Keith Richards, chief executive of the PFS, said the regulator believed the industry has over-engineered the reports but some advisers are so concerned about future complaints they are including information aimed at protecting themselves rather than necessarily adding value to their client.
He said: “There is clear recognition from the regulator of the issues, and there has been a willingness to work with the sector to achieve a workable solution.
“Each case is based on individual needs and so in addressing the problem, it is not about creating a template for all advisers to follow in a strict and formulaic manner.
“Advisers must be allowed to continue to tailor their advice specifically to the needs of their clients, and this should not be undermined by an inflexible solution."
Instead the review is aimed at simplifying the suitability report process through the development of high-level guidelines for advisers to refer to, he said.
"These should address factors such as presentation and layout, good practice methods of communication to clients, and minimum legal requirements.”
Mr Richards said one of the most challenging aspects of this work would be agreeing what could be removed from a suitability report without increasing the risk to the client.
A spokesman for the Financial Ombudsman Service said: "We’re happy to share our insight with the regulator and others.
"We might need to consider a suitability report when assessing disputes involving the suitability of an investment when advice has been given by a financial business – although that might only be one part of the picture when considering a complaint.
"Clarity is of course important, and we think it’s important for advisers to tailor reports to the individual."
damian.fantato@ft.com
