There are several steps advisers can take to avoid falling foul of an upcoming suitability review, according to consultant and former Financial Conduct Authority man Rory Percival.
Speaking at the Waverton adviser investment forum yesterday (March 4), Percival, who designed the FCA's approach to assessing the suitability of investment advice, urged advisers to heed existing guidance on DB transfers in preparation for the next suitability review of retirement income advice.
In June the regulator published its guidance consultation on advising on pension transfers discussing the need to gather additional details around the needs and wants of clients in regards to DB transfers. Percival said the same approach should be used more widely in retirement planning.
“I absolutely urge you to read this – it’s the best piece of information the FCA has put out in 10 years,” he said.
The consultation closed in September and this month a finalised version is expected to be published. Percival recommended that every adviser should read chapters three to six.
“It’s an absolute goldmine” for getting ahead of the curve, he said.
He said the first issue that advisers need to be aware of is the “conflict and compromise” between clients and advisers “between flexibility and security”.
“This is absolutely something you should be reading across,” said Percival.
“If you’re doing DB transfer work, you need to be asking clients about their views on security versus flexibility.
“So too, you should be asking the same questions to all of your at, or in, retirement clients. It doesn’t appear in firms' fact finds at the moment, but you do need to be including those in the future.”
Percival suggested that the guidance on DB transfers within the COBS 19 handbook should be utilised as a questionnaire for the client – asking them for their current views on the issues and also what they expect their views to be like in the future.
The second area identified by Percival is the need to gather ‘colour and detail’ around the client’s financial needs.
Percival said the FCA had undergone a shift in focus in recent years, which would be reflected in the upcoming suitability review.
Whereas previously, following the RDR, it had an industry-wide focus on professionalism, now it is “very much focused” on how individual firms are run, according to Percival, who supplemented his 20 years within the advisory industry with a ten-year stint at the FCA as technical specialist.
This is evidenced by the Senior Managers and Certification Regime, as well as the Prod rules within MiFID II, he said.
“The FCA are due to undertake an assessing suitability review II," Percival said, a follow-up to the 2015 review. The review was scheduled to be well under way by now, but the complexities of Covid meant that it has been delayed.
“At the time, we looked at three areas of advice: investment advice; retirement accumulation advice and we looked at retirement income advice.”