Advisers are judged by the reports they write rather than their true relationship with the client, so it is important to get suitability letters right, according to former Fos manager Chris Wells.
Speaking at the Financial Suitability Forum in London yesterday (December 6) Mr Wells, now a consultant for financial advisers, said the Financial Ombudsman Service, claims management companies and sometimes clients themselves looked at suitability reports to judge the quality of service provided by the adviser.
Here are four things advisers need to get right when compiling these reports, according to Mr Wells.
1 Prove you know your client
Mr Wells said an often found weakness in suitability reports was a lack of proof the adviser knew their client well.
He said: “This is a big one for the Fos. Most advisers really know their client but there’s no evidence.
“Knowing your client needs to come through in your suitability report — not the details like date of birth or simple statements like ‘they want flexibility’.
“You need to show you know the soft facts. The stuff integral to advice, why do they want that flexibility.”
He also thought advisers rarely pushed the connection between the product and the person through the report, which resulted in almost “two separate parts” of analysis when the two should be integrally linked.
2 Don’t focus on other options
According to Mr Wells advisers often listed the other investment opportunities available to the client with extensive explanations of why these were not suitable.
He said: “This not only makes the report really long but sends the wrong message. It becomes product-focused rather than client-focused.”
Mr Wells also said it made the report seem defensive as it came across as “we’re going to cover ourselves and explain to you why we’ve come to this".
He said advisers should instead focus on the actual product they are recommending and the reasons it is suitable for that client.
He added: “The long reports go into chapter and verse of why you have not recommended other products, and you end up not talking about the client or the product.”
3 Keep it short
Mr Wells said it was hard to prove to the regulator the client had been engaged when they were handed a report that was “55 pages long”.
For example, he said the client was likely to win a case against the adviser if the adviser had put a risk warning on page 27 of the suitability report but the client had “lost the will to live” by the time they got to that section of the report.
He said: “Informed consent is a key part of advising and client engagement is a big part of that.
“There are just three main bits you need to include: the objectives, the attitude to risk, the capacity for loss. If these are strong, you can put the rest on top of that in less pages.”