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Evidencing Suitability: the Key Considerations

By Andy Sutherland 04/05/17

As reflected in the FCA’s findings from its recent thematic review on suitability, and indeed in our own work in this area, an improvement is apparent in the overall suitability of advice recommendations. However, we cannot yet rest on our laurels as, notably, evidencing suitability remains a core issue for many firms. TCC’s Andy Sutherland, Managing Director of Advisory Services, explores the key considerations for ensuring you are meeting FCA expectations in this area.

  1. Suitability reports: at a basic level, you should be able to ensure a comprehensive audit trail and provide clear, jargon-free reports.
  2. Replacement business and the use of CIPs: in instances where a centralised investment proposition has been used, or where a recommendation is reliant on a switch, you need to be able to clearly demonstrate how this is consistent with the client’s specific needs. The customer should be able to directly compare the projected benefits of a new arrangement.
  3. Over-reliance on risk-profiling tools: a robust attitude to risk assessment should take into account personal circumstances, attitude to risk, knowledge and experience. Many firms rely too heavily on risk-profiling tools without sense-checking the outputs.
  4. Order-taking versus advice: clients are likely to make financial decisions based on emotional drivers, but the FCA doesn’t expect to see advisers acting as order-takers. Where a client wishes to proceed against the advice received, you should be taking steps to understand those particular drivers, ensure the client is fully informed and be prepared to challenge their decision.
  5. Inadequate disclosure: the clear disclosure of information, particularly in relation to charges, is essential for ensuring clients fully understand the nature of the services they will receive, are able to judge value for money and make informed decisions about the actions they take.

For an in-depth analysis of what you need to take into account when evidencing suitability, download our latest white paper ‘Suitability and Culture Entwined’.

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