FCA focuses on suitability
Have you received a request from the FCA for your suitability reports recently?
If so, you're in good company. Hundreds of IFA firms received a request for their suitability reports from 2015 just days after the FCA published its new business plan for 2016/17 on 5 April 2016.
In their business plan the FCA raises concerns that consumers may not be receiving "the most suitable advice" and advisers may "offer a limited range of products or have staff reward schemes that motivate sales over suitability". The recent call for suitability reports is evidence of the FCA's continuing commitment to improving the suitability of advice provided to consumers.
It is understood that the FCA will review a sample of case files selected from the data collected. It is also expected that they will enter into a dialogue with advisers with a view to producing guidance and template reports. This is a case of the FCA doing what it says it is going to do. In Drew's recent blog he commented that one of the recommendations arising out of FAMR was to improve suitability reports. FAMR found there to be considerable variety in the approach and format of suitability reports being used by IFAs prompting the FCA to look to provide firms with better guidance and template reports; which appears now to be the reason for the widespread request for suitability reports.
According to their business plan the FCA wants to review suitability of advice in order to achieve "Affordable, accessible advice options that meet consumers' needs" and "Advice [that] is of appropriate quality and suitable for consumers' needs". This closely mirrors FAMR recommendations concerning affordability and accessibility of advice for consumers with the continuing attention on addressing the 'advice gap' which has become so prominent since the introduction of the pension freedoms.
Despite the good intentions, firms may be somewhat uneasy about the scrutiny. If any of the reports are considered to be sub-standard and led to unsuitable investments being sold to consumers, firms could be facing the prospect of past business reviews and/or redress payments.
Concerns aside, reviewing real data and consulting with (some) advisers is promising; what is not known is how far the review, and in turn, any changes will go. Will there be an attempt to standardise suitability reports to the extent that there is a 'one size fits all' approach or will there be discretionary guidance? Will either result in changes in the current approach to advice?
An area of real change and challenge is robo advice. It's as much of a current theme in the advice market as suitability but we don't know if the FCA's current review will directly address it. With such uncertainty and variety anticipated in the robo advice market it would seem to be a prime target for this review, as well as it being relatively well timed, particularly for those still refining their choice of robo advice format. Perhaps the FCA will defer until there is sufficient specific robo advice data to conduct a similar review to the current one.
Ultimately how a balance is to be struck between the delivery of suitable advice, affordability and accessibility is unclear. The FCA anticipates measuring the success of the review on changes in consumer satisfaction and consumer complaints data. Measuring success with consumer reaction is no bad thing but will fewer complaints be indicative of more suitable advice or more successful investments?
Clearly suitability is high on the FCA's priority list and with its relevance to so many current topics we will be keeping a close eye on developments in this area.