RegulationJul 21 2020

What the FCA expects from discretionary managers

  • Describe some of the requests by the regulator regarding advice suitability
  • Explain dangers with vulnerable clients
  • Describe some of the dangers, and necessities with discretionary management
  • Describe some of the requests by the regulator regarding advice suitability
  • Explain dangers with vulnerable clients
  • Describe some of the dangers, and necessities with discretionary management
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What the FCA expects from discretionary managers

When speaking to most discretionary investment managers, it is clear that they have a simple mandate; to ensure their clients receive the very best service, while continuing to operate a compliant and profitable business.

With this in mind, it comes as no surprise that, in the current investment climate, many wealth managers are asking themselves; how will I continue to meet the regulator’s ongoing requirements? 

Suitability of advice

When the regulator wrote out to all firms at the start of the year in its 'Dear CEO' letter, suitability of advice was number one on its agenda and, while focus has inevitably shifted in the past few months, its core objectives have not.

The first FCA Assessing Suitability Review was in April 2016 - the purpose of the review was to assess a sample of advice files that would allow them to draw conclusions on the suitability of advice and quality of disclosure in the sector as a whole.

Even though the outcome of the review in terms of suitability was positive, in the FCA Business plan of 2019/20 it announced a review of the market for pensions and investment advice for a second time – the Assessing Suitability Review 2.

This second review is different than the first and will focus on the advice that consumers receive around retirement income.

The FCA commented that, with a greater number of options now available in retirement planning, it is vital that consumers get good advice at the point they access their pension savings and, if necessary, going forward.

Although the FCA has temporarily shifted Assessing Suitability Review 2 to the backburner, we anticipate that it will be only more important to the regulator in the post Covid-19 world. 

As you know, the review will focus on initial and ongoing advice to consumers about taking an income in retirement, and we anticipate that all future reviews will cover sustainability in all market conditions.

The above reviews and other thematic supervisory activity in this area highlight the importance of an authorised firm having a robust, compliant, fully documented advice process in place, and fully trained and competent staff to deliver the elements of that process. 

These key controls are contributors to ensuring that suitable advice is provided to clients with the necessary consumer outcomes achieved.   

What the regulator expects

We know that the regulator would expect to see the following:  

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