The Association of Professional Financial Advisers has published a guidance paper for its members to help them understand the Financial Conduct Authority’s expectations on suitability reports.
It was put together after Apfa held discussions with the FCA and the Financial Ombudsman Service.
One of the main issues highlighted by Apfa’s discussions with the regulator was the importance of layering the report – summarising the most important information at the start.
Consumers, Apfa’s guidance paper said, should not be expected to have to search for important information in an annex at the back of their suitability report.
Advisers should also make sure there is a clear rationale for their recommendation, which the FCA stated is not always the case, and they must draw the client’s attention to the risks involved without relying on standardised warnings.
Caroline Escott, Apfa senior policy adviser, said producing piles of paperwork that never gets read does not help clients to engage with their financial decisions.
She said: “Advisers told us they felt frustrated at the lack of specific guidance from the FCA in this area, which is why we decided to try to fill that gap with our guide.
“We still believe that there is more the government and regulator could do to encourage advisers to produce more concise suitability reports.
“One such step could be to prune the number of different rules and regulations covering disclosure, although we recognise that many of these requirements come from European Directives and Regulations.
“However, the industry must also play its part and we are grateful to members, as well as to the FCA and Fos, for working with us extensively on this issue.”
Apfa’s talks with the FCA and Fos stemmed from the former’s work on a report on smarter consumer communications, which was published in October.
In its report the FCA pointed to the fact consumer understanding of the nature of advice and the way it charges was limited, while knowledge of the different types of advice was “poor”.
Apfa’s guidance paper also stated it was unnecessary to include details of the firm’s investment strategy, listing all the products which have not been recommended and the reasons for that, and the area of advice the adviser plans to cover.
Advisers should also pay attention to the layout of a suitability report, using concise bullet points and tables where possible, Apfa added.
Language should be clear and comprehensible and, while jargon should be avoided, the use of a glossary can help where this is unavoidable.
damian.fantato@ft.com
