In light of the continuing and increasing concerns over the COVID-19 virus and its impact on the economy and consequently on investors, we recommend that adviser firms should give serious and early consideration to how they will address the various issues arising. 

ATEB recommends that firms should have a documented policy* in relation to both the virus/health aspect on the one hand and the implications for clients and their investments on the other. 

Below, we offer a non-comprehensive list of things that should be considered.

INVESTMENT / ADVICE CONSIDERATIONS

FCA and other guidance

• Keep abreast of FCA updates on the virus and recommended action here.
• Sign up for ATEB Newsletters using the sign up option at the right of the screen or contact ATEB for specific regulatory guidance here.

Handling Client Concerns

• Communicating with clients and keeping them informed is an essential element of the firm’s policy around the present situation.
• Regardless of any formal reporting, for example as a result of client reviews or 10% drop reports, firms should reflect the inevitable need for clients to be kept informed in relation to their investments and what the firm’s views are. Communication should be reassuring where possible but also clear, accurate and realistic. Clients should be offered the opportunity to contact the firm if they have any concerns.
• There have already been instances of the 10% drop reporting taking effect and there could well be further 10% drop reports issued to clients. Except in a few circumstances, adviser firms are not responsible for preparing these reports or notifying clients (read more here). However, firms are likely to be aware when clients have been notified of a 10% market drop and should consider this as an appropriate time to communicate with affected clients to offer their own views and to provide context and reassurance and guidance as appropriate.
• We are aware that where there is a DIM model portfolio on a platform, the DIM and Platform operators are not always clear or helpful in who is responsible for doing the reporting. Many of the DIM arrangements are on an agent as client basis and some DIMs take the view that they have no investor details so cannot notify the client. Some platforms are also less than helpful and are passing any reports to the adviser firm with an indication that the adviser must notify the clients. Uncertainty like this is potentially very risky. If you are aware of this happening, we recommend urgent discussions with your DIM and Platform to agree a sensible way forward where the relevant parties comply with their obligations. Refer to the previous point regarding where responsibilities lie.
• A likely outcome of receiving 10% drop reports, or because of market losses reporting in the media, is that some clients will wish to switch funds to cash or even disinvest altogether. If a client holds this view, despite the adviser firm’s best efforts to provide appropriate reassurance about the long-term nature of equity investment, firms should action the client instruction appropriately. However, it is unlikely that this can be done on an execution only basis, given the probable involvement of the adviser up to that point. A personal recommendation and a suitability report are required. Appropriate consideration of the client’s stated change in outlook, risk profile and/or objectives should provide rationale for a recommendation to switch to cash or disinvest as applicable.
• In the event a client is then totally or partly in cash, firms will need to decide how to deal with the ongoing adviser charge. Is it justifiable to take a charge on cash? For how long? Should the charge be deferred until the client is ready to go back into the market?

Investment process

• Have you reviewed your investment process to reflect current uncertain and rapidly changing market conditions?
• What is your view on how exposed to markets clients should be? Should new money be held in cash currently, or drip fed into the market? How do you incorporate the firm’s views into recommendations to new clients and into review meetings with existing clients?

Specific stress testing ATR/CFL

• Does your risk profiling process reflect the possibility that new and existing clients might have a different ATR and CFL in the short-term compared with what might be appropriate in the longer term?
• Does your mapping of ATR to portfolios need to be reviewed?
• Existing client reviews should specifically address the client’s risk profile and investment objectives – it is likely to be inappropriate to rely on an existing fact find or risk assessment, even if it is only a year old.

Suitability of previous advice

• If you are considering deferring client reviews, remember that there is a requirement for a periodic assessment of suitability to be done for all clients with whom the firm has an ongoing relationship. These must be done at least annually. Receipt of any ongoing trail commission or adviser charge is prima facie evidence of an ongoing relationship.
• The potential for a client’s appetite for risk, or their objectives, having changed, subtly or significantly, should inform any periodic assessment of continued suitability, so that information must be confirmed or updated before the suitability assessment report is issued. It is not sufficient to assume no changes.
• In particular, clients in drawdown/decumulation might require immediate attention to consider how recent significant market drops affect the amount and timing of any scheduled or desired withdrawals. It could be beneficial to run through some form of cashflow modelling with these clients so that they can have a picture of their financial circumstances and whether the current rate of drawdown is sustainable, and so consideration can be given to what options are available to the client, including accessing non-invested assets such as cash on deposit (where appropriate).
• Similarly, clients that have transferred from defined benefit pension schemes but who are not yet drawing benefits may have expectations that need to be managed in relation to, for example, the timing of drawing on funds or retiring from all work or reducing hours.
• Similar considerations apply to clients currently being advised in relation to a defined benefit pension transfer.

Management information

Can you readily identify:

• vulnerable clients;
• clients by age;
• clients due a review and whether that review has taken place or not;
• clients in accumulation or decumulation;
• date a fact find or risk profile was last done;
• clients with a cautious/low risk ATR;
• clients likely to make significant withdrawals;
• clients considering contributions (AA/ISA etc.);
• clients that decide to switch out of equities or disinvest;
• when that decision is to be reviewed?

HEALTH CONSIDERATIONS

Government guidance

• Keep abreast of the daily government updates on the virus and recommended action.

Safeguarding clients

• Is it appropriate and possible to amend the way in which interactions with clients, existing and new, take place, even if temporarily. Reducing staff travel; meeting only in the office; conducting meetings remotely (Skype and similar); greater use of telephone, email or mail in place of face to face contact.
• Have you identified all clients who are particularly vulnerable because of age or underlying health conditions? Do you have appropriate data protection consent to hold sensitive personal data for the client?
• How will you deal with these clients? Remotely? Defer meetings/reviews?

Safeguarding staff and the business

• Are all staff aware of the symptoms of the virus and that they should not come to work if they suspect they might be infected?
• Is it possible for some or all staff to work remotely?
• Is the office cleaning regime adequate, especially in communal areas or client meeting rooms?
• Should there be a means of identifying any potential risks from clients and other visitors to the office? For example, have they been abroad, or otherwise exposed to anyone who may have been exposed to the virus?
• Are your business continuity arrangements adequate?
• Are any outsourced or third-party arrangements adequately protected? Do you know what continuity arrangements your suppliers have in place?