Regulation  

What the regulator expects from advisers’ duty of care

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Taking care of outsourced clients

Principle six states: “A [company] must pay due regard to the interests of its customers and treat them fairly.”

When this comes to directing a client’s assets to an external manager then the FCA requires the adviser to act in the client’s best interests. 

Mr Walkling says one must ask: “Why are you doing this? Can you demonstrate it’s for your client’s best interests and it’s suited for you.

“A lot of IFAs will run their investment portfolios on an advisory basis; they’re doing the switching and doing a lot of the work in managing and tweaking these portfolios.” 

Detailed rules

The reason a lot advisers are outsourcing this work is because it takes away a lot of this work, but they have to make sure it is worth the extra cost.

Principle seven covers the information needs of clients and communications, which means a company must treat clients in a way which is clear, fair and not misleading.

A company must also take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment.  

There is also a requirement about managing conflicts of interest.

Mr Walkling says: “There are detailed rules, but the principles are high level. In every area there will be rules for mortgages or investments, but the principles apply to everybody.

“The FCA will check up on whether the principles are being adhered to in its supervisory activity.”

This means that the watchdog will go through the client files to check that all the correct behaviour and suitability letters are being completed by the adviser.

Caroline Bradley, group risk and regulatory director at Tenet Group, says the FCA paper, which is aimed at all financial institutions, is, to a large degree, unnecessary.

She says: “[The policy] would put an additional layer of duty of care on top of what there is already.

“We would argue we already have a duty of care to our clients and we have a duty of care to comply with these principles; we have professional indemnity insurance to back us up on the rare occasion that we get it wrong.”

Principle nine, which states a company “must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment,” is in the FCA’s sightline for amendment.

In the discussion paper, the FCA states: “An amendment could be made to principle nine to require firms to act in the best interests of its customers when providing advice or when making decisions on their behalf as it is arguably in these circumstances that the case for applying a ‘best interests’ obligation is strongest.”