Suitability reports under MiFID II

MiFID II, which comes into effect from 3 January 2018 covers a lot of ground and will require many firms to make changes to advice processes. Suitability reports are one important aspect that many firms will have to reconsider under MiFID II.

ATEB’s intelligent Suitability software is designed to help firms deliver effective suitability reports with minimum effort, enabling both the initial and ongoing reporting required under MiFID II.

Timing of suitability reports

Under MiFID II, a suitability report will have to be issued ‘before the conclusion of any contract’ recommended in it. There is some debate to be had around when a contract is concluded but we believe this simply means pre-sale – or that, in practice, firms should consider that to be a safe way to comply with the rule. We take the view that providing the report to clients before they make a decision on how to proceed has always been good practice and places the client in the best position to make an informed decision.

Content of suitability reports

Suitability reports must specify the advice given and how that advice meets the preferences, objectives and other characteristics of the client. COBS 9, the current primary source of rules and guidance on suitability will remain in place after 3 January 2018, at least for while but there is a whole new chapter, COBS 9A that will also apply to most firms and contains a few new requirements.

Firms must inform clients or potential clients, clearly and simply, that the reason for assessing suitability is to enable the firm to act in the client’s best interest.

When recommending a ‘bundled package’ of products, firms need to ensure that the overall package is suitable. For example, an investment linked to borrowing (lifetime mortgage or equity release type arrangements).

Records relating to suitability in respect of a life policy, a personal pension or a stakeholder plan where a client proceeds with the recommendation must be retained for a minimum of 5 years. Records relating to pension transfers, conversions and opt-outs still have indefinite retention. Records relating to suitability where a client does not proceed with the recommendation do not need to be retained but we would recommend that they are kept as long as they might be of value. 

Periodic assessment of suitability

This is a new requirement and firms will need to give serious consideration to how their ongoing service propositions operate. Periodic assessment of suitability is detailed in COBS 9A.

“Firms providing investment advice must agree with a client whether a periodic assessment of suitability will be performed. If periodic assessment is to be performed it must be at least annually and the continued suitability confirmed in writing.”

Most firms currently agree with the client whether ongoing reviews are required or not. Where ongoing service is to be provided, it is usually at least annually. So far so good, no fundamental changes of practice required by most if not all firms.

However, while we believe firms probably provide written confirmation of any changes to be made to the client’s portfolio, it is less certain that there would always be written confirmation of the suitability of existing investments each time, if otherwise no changes or new investments are being made. So, firms should note that there will need to be explicit confirmation of the suitability of existing investments each time a review is done and that such reviews must be at least annual.

The periodic report, must contain an updated statement of how the existing investments meet the preferences, objectives and other characteristics of the client. But such confirmation of continued suitability does not need to be War and Peace – a reference back to original report and brief confirmation is all that is required. The rules state –

“Where an investment firm provides a service that involves periodic suitability assessments and reports, the subsequent reports after the initial service is established may only cover changes in the services or instruments involved and/or the circumstances of the client and may not need to repeat all the details of the first report.”



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

Suitability requirements remain essentially the same under MiFID II as at present. However, the aspects mentioned in this article are likely to need firms to reconsider and amend some aspects of how suitability is assessed and documented, both initially and on an ongoing basis.

Ongoing review services will need to be re-assessed and, in many cases, reinvented. 

These are just the tip of the MiFID II iceberg of things that will have an impact on firms and that will need to be addressed in the run up to 3 January 2018. That is really not far away so we would encourage early attention to MiFID II. ATEB can support firms with accurate information and with the implementation of MiFID II ready processes.

In particular, Suitability, ATEB’s intelligent suitability software is designed to help firms deliver effective suitability reports with minimum effort and supports both initial and ongoing reporting to clients.

Action Required By You

  • Give early attention to how MiFID II affects your firm;
  • Consider whether ATEB’s Suitability software could help deliver on the new requirements for suitability reports and periodic assessment of suitability;
  • Speak to your usual ATEB Consultant to see how we can help you prepare for MiFID II or contact us here;
  • Click here for more information on Suitability;
  • Don’t delay, MiFID II is not far away!
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About the Author

Technical Manager - Often referred to as the Oracle or the Sage, Alistair has a wealth of financial services experience. He is our go-to Technical Manager and enjoys nothing more than a complicated conundrum. Feel free to test his renowned knowledge by getting in touch.

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