Positive Compliance: Episode Three

Like the previous articles in the ‘Positive Compliance’ series this article has been drawn up by collating information from various sources following the FCA’s well received Positive Compliance workshops. It should be read in conjunction with the previous articles regarding Systems and Controls and Business Standards and Pension Switching.

There should be no surprises in the article below, but we strongly recommend that all principals and advisers should read the articles carefully as a useful reminder and ensure any gaps highlighted are addressed.

There inevitably will be overlap between the series of articles, where possible we have tried to avoid this but please ensure you refer to all articles to get the full picture. 

Remember the client’s best interest rule and principle, as well as a positive outcome for clients are cornerstones for every case.

The guidance below shows high level best practices for the advisory process (it is not designed to be comprehensive, therefore if you are unsure about any aspect then please discuss with your local ATEB consultant).

Concerns and Expectations 

Lack of evidence to support client suitability:

  • There should be clear objectives to support advice i.e. why they need the income;
  • There should be sufficient evidence to support the need for the tax free cash element; and 
  • The FCA made a point of saying that it may be obvious but it needs justifying especially if the client has existing cash to cover their objective(s)  without using TFC;
  • There should also be sufficient evidence to support the amount of TFC being taken.

ATR:

  • Please ensure you refer to the first article in this series for the ATR issues raised.

Research and Analysis:

  • When moving provider, there should be sufficient evidence to support why the new product is required and the file should contain evidence to show that the ceding scheme has been analysed in DETAIL before making a recommendation;
  • If there are multiple ceding schemes each fund should be assessed on its own merit;
  • If the ceding scheme has drawdown facilities there should be clear evidence why it has been discounted;
  • Additional costs should be justified; 
  • Loss of features should be justified;
  • If a SIPP is being used to facilitate drawdown – there should be clear and personalised justification why is it required (see previous SIPP article); 
  • The file should demonstrate that all other potentially appropriate options (including non-product related) have been considered and include supporting evidence why they have been discounted; for example, if the recommendation is for an annuity and an income drawdown plan could still have been POTENTIALLY suitable, then the drawdown still needs to be considered relative to the clients individual circumstances;
  • The FCA would expect clear notes justifying your analysis and reasons.

Suitability Reports:

Key points relating to an Income Drawdown Retirement Options Suitability Report:

  • Must evidence the client specific needs and objectives;
  • Confirm the amount of and why TFC is needed;
  • Confirm the level of income required and potential disadvantages / implications of drawing a high income relative to the clients circumstances;
  • Include a full description of how death benefits and taxation apply; a comment was made that a good practice would be to include a statement along the lines of ‘you may wish to make your dependents aware of this’ and ATEB recommend that dependents are made aware BEFORE advice is given.
  • If a flexible drawdown is being recommended the client should be made aware in writing of the specific flexible drawdown limits and rules, if these have not been issued previously then the suitability report would be a good place to include this information;
  • Should clearly make a POSTIVE recommendation with full reasons. If other options may have been relevant for the client, then the report should show why others have been discounted (simply to reinforce the relevance of your recommendation) – please note this does not mean a “dump of generic reasons for and against other alternatives”;
  • Must include explanation of GAD review process and the importance of the reviews;
  • Include costs in £sterling as well as percentages, if included.

 

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

The FCA has given a clear indication of what they expect and will be looking for when they visit firms. Be prepared and ensure your standards match their expectations.

Action Required By You

  • We strongly recommend you review your internal systems to ensure all of the points raised are being addressed;
  • Most of the feedback should cause you no surprise but you should nevertheless read through the points listed and mark each one with a tick (hopefully), a question mark (requiring clarification) or a cross (requiring action);
  • Discuss the findings with the senior management team and of course document the discussions and outcomes;
  • Ensure all advisers and staff involved in these areas are aware of the content of these Newsletters;
  • Discuss findings with your ATEB consultant and arrange a focussed audit if appropriate.
SUIT - Beautiful Reports
CREATE BEAUTIFUL
SUITABILITY
REPORTS
SUIT - Complete Control
TAKE BACK
CONTROL OF YOUR
SUITABILITY REPORT
PRODUCTION
SUIT - Comp confidence
SUITABILITY
REPORTS
WITH FULL
COMPLIANCE
CONFIDENCE
COMP - Hands on
HANDS-ON COMPLIANCE
Helping you to implement solutions
COMP - File checking
FILE CHECKING
All business cases checked, including DB transfers
COMP -166
Section 166 and
Regulatory Reviews
Extensive S166 experience
COMP -healthchecks
Audits and
Health Checks
Need a regulatory check-up?
COMP -166
E-COMPLIANCE
A lighter touch support service
COMP -166
FCA Applications
We have completed hundreds
of Part IV applications
previous arrow
next arrow

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.

Contact Us

Brought to you by

Explore more articles in this category

Other articles that you might be interested in