Association of Professional Financial Advisers  

Apfa seeks to reduce suitability report needs

Apfa seeks to reduce suitability report needs

The Association of Professional Financial Advisers (Apfa) is in talks with the FCA and Fos in a bid to reduce suitability report requirements.

In its guidance paper 'Smarter Communications and Suitability Reports', issued in December, the trade body stated: “It is clear that a mountain of paperwork does not encourage clients with their personal finances to make the right long-term financial decisions.”

One major consideration is the role of layering. This is where the most important information is included upfront in a report, with less significant information at the end or on a website. The paper said the regulator has accepted that some pieces of information are more important than others. 

Matthew Harris, independent financial adviser at Dalbeath Financial Planning, said: “The message clearly coming from the regulator, and our own external compliance consultants, is that suitability letters should be getting shorter and simpler. Our suitability reports for normal pension and investment business are now under 10 pages, whereas 18 months to two years ago they used to be double that.”

Mr Harris felt the concept of layering could work, with the caveat: “As long as you don’t just end up with reports that are too long again because you’re repeating yourself.”

Many advisers remain concerned that less comprehensive suitability reports could lead to problems further down the line.

Apfa outlined the fear that advisers are creating lengthy and technical suitability reports as a means of “risk-mitigation against future complaints and less by the need to communicate to consumers”.

“Advisers see it more as covering yourself in the event of a complaint,” said Dhawal Chandan, chartered financial planner at Just Financial Group.

But Mr Chandan added that the reports themselves offer little protection from Fos decisions. “The suitability report is just one part of the picture. The complaint could be that the research wasn’t done correctly, or you’ve selected a product, but not done the due diligence.”

The FCA Handbook (COBS 9.4) states that adviser firms must provide suitability reports to retail clients if the firm makes a personal recommendation, which is then acted on, to a client. Advisers must then specify the client’s needs, explain why the recommendation is suitable and outline any potential disadvantages.

In addition, FCA Factsheet No. 23 says the purpose of a report is to tell the client “how and why your recommendation meets their objectives”.

Although this seems transparent, Mr Chandan explained that an historical disconnection between the FCA and Fos has caused confusion for advisers with regards to the report requirements. He added that recent FCA Live events have proved positive to address this, but further joined-up thinking from both bodies would help advisers. 

“A clear answer from the regulator, along with Fos, will make things much, much easier,” Mr Chandan said.

craig.rickman@ft.com