Business Standards

The FCA has reiterated some key messages for all individuals and firms recommending investment products.

While there are no new messages, it is very important that all advisers and supervisors are aware of the following:

The three main areas that result in the FCA failing file checks are:

  • Additional costs being incurred without a demonstrable benefit to the client;
  • Product does not match the client’s attitude to risk or capacity for loss;
  • Insufficient product, platform or fund due diligence on file.

When the FCA checks a file the five questions about costs they are looking to be answered are:

  • Has the cost of the recommendation been considered and disclosed to the client?
  • If it is replacement business, has a thorough cost comparison taken place and if not why not? It is however understood that cost comparisons cannot always be made (e.g. in the case of old with profit funds), so, if you cannot compare the ceding and receiving funds, please ensure you clearly evidence why not (an example quoted by the FCA was a letter from the provider)
  • Has the client incurred additional costs? If so is the reason for the additional cost clearly explained i.e. how is this in the best interest of the client?
  • Are there lower cost options available that could have met the client’s needs that have been discounted?
  • If so is it clear why they have been discounted (documented proof)?

Note that the FCA also reiterated that the most important part of a suitability report is the client’s needs and objectives, as these determine the suitability of advice.

In this respect ATEB has always stressed the need to link the client’s needs and objectives to the recommendation – there must be a clear correlation.

Some other key areas the FCA expect to see when checking files:

  • Platform – does the client need it? Advice must be individual and in the best interest of each client;
  • Performance – if this is a reason for replacement then justify it! Support the recommendation with evidence, facts and figures and always fully consider all charges;
  • Charges – clear comparisons of all costs and charges should be in suitability report. The FCA consider a comparison table to be a good method, believing that it provides a clearer picture than standalone projections;
  • File checking – adopt a risk based approach. Check high risk business on a pre-sale basis where possible as it is difficult, sometimes impossible, to correct post sale;
  • Management Information – record robust MI that can be broken down into product, high risk sales and individual adviser sales. Use it to control and manage your business;
  • Non-business register – it was suggested that firms record the work they carry out for clients without being paid or where no business arises – good for the firm’s image. 

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

There is nothing new here.

Clearly however, some firms are still not hitting the required standards.

We have recent experience of the FCA applying extremely strict criteria (through our Section 166 Skilled Persons work) so please consider the above very carefully. All advisers must address the issues as part of the advice process.

Oh, and yes, remember that if we find issues with your files during file audits – remember, we’re on your side!

Action Required By You

  • The person responsible for compliance should read the documents above;
  • Ensure all advisers are aware of requirements;
  • Ensure you have robust systems in place to highlight any shortfalls in your procedures;
  • If shortfalls are highlighted clearly manage them until they are resolved;
  • If you have any questions or concerns please contact your ATEB consultant.

About the Author

Steve is an ATEB Director and has a deep understanding of all matter regulatory, built up over his 30 years + in the industry. With a training background and a technical brain, he overseas numerous complex projects and client implementation work.

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