Recent FCA suitability commentary – key points
30 September 2019
ATEB Consulting’s Steve Bailey analyses a recently delivered FCA speech on the suitability of advice and highlights key points advice firms should take from it.
The FCA has published the transcript of a speech delivered by Debbie Gupta, Director of Life Insurance and Financial Advice Supervision. We recommend all advisory firms should read the text. The speech is aimed at defined benefit transfer firms but the underlying commentary is relevant to all firms.
The speech made clear that suitability continues to be at the forefront of the FCA’s work because the impact of poor quality advice can’t easily be undone.
Some examples of poor practice were also highlighted. For example, some pension transfers were being completed where a consumer had only received a single 30-minute consultation and some consumers were paying for an on-going service but that service was not being delivered.
We have provided a brief summary below but we recommend reading the full text HERE because it includes more detail, background and evidence.
The FCA has four broad areas of focus:
The two key areas highlighted in the speech, in addition to lessons learned, were fact finding and evidencing the advice / recommendation to ensure it matches the client’s attitude to risk (ATR).
There is a follow up of don’ts which we have transposed below:
Matching the recommendation to a client’s attitude to risk
All of the above, including the fact find points, should be clearly evidenced on file.
Finally, below are two quotes from the article:
“Make sure the scenarios that you use are realistic and effective. It is hard to assess if the risk profile is suitable if all the scenarios shown are positive. It is much more effective to stress test people’s reactions to a negative scenario.”
“And finally, it’s not just clients’ knowledge and experience. It’s yours too. Acknowledge and recognise the limitations of your own knowledge. Do you really understand the products and services you may be recommending? We would expect to see evidence of the due diligence carried out on products and services to mitigate this.”
Hopefully the message above ‘rubber stamps’ your processes but, if they don’t, some action is called for.
Our view and action points
The suitability rules are in place to help you and protect your consumers.
While we hope there is nothing new in the speech, we would recommend that all firms critically self-analyse and challenge whether they are fulfilling the requirements to the level of detail required to clearly evidence suitability.
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