The Model Office Blog

At the recent Money Marketing Interactive Conference Harrogate The FCA’s Debbie Gupta, Director of Life Insurance and Financial Advice Supervision, gave a speech on improving advice suitability and explored how the suitability of financial advice can be improved.

We review Debbie’s views and what actions you can take to improve the suitability of your firm’s financial advice.

Improving suitability in financial advice

Debbie is responsible for a team supervising firms that influence long-term savings; from life insurance firms to third-party administrators and crowd funders. In all, around 6000 firms.

This supervision centres around one key question: has the client received suitable advice?

Consumers need to make an increasing number of (and increasingly complex) decisions around their financial futures. The impact of these decisions can have long-term ramifications, with the choices made often unable to be undone or reversed.

What has the FCA learned from its work on advice suitability?

In 2017, the regulator published findings from its Assessing Suitability Review.  The review showed that 93% of advice complied with the rules on suitability (split 07% networks and 93% Directly Authorised) But this figure was weighted towards simpler areas of advice.

When the FCA looked at more complex issues – non-workplace pensions, for instance, and both pension- and non-pension-related investment products – the figures were not so positive. Only around 50% of the advice given on defined benefits pension transfers, for instance, was deemed suitable. Here, the potential for consumer harm is high.

There was also the issue of cost and charge disclosure with nearly half firms assessed failing regulatory disclosure requirements. 

What is the regulator doing to tackle advice that’s falling short?

Four areas of work dominate the FCA’s approach to unsuitable advice:

1. Improving standards particularly in areas where advice falls short

1. Targeting firms that cause the most harm
2. Supporting consumers in understanding what they can expect from their advisers
3. Helping advisers to improve by sharing the regulator’s learnings, with clear do’s and don’ts.

What does GOOD look like: Improving standards

The FCA will continue publishing consultation papers and policy statements and running workshops for advisers across the country. It is ongoing, with the next advice suitability review due and the Senior Managers and Certification Regimeon its way this December plus pension consultations.

Tackling firms that cause harm

The regulator’s 2019/20 business plan plans to improve firm’s management information via better use of the data and intelligence at its disposal.

Targeting firms in a focused way and kicking out persistent offenders, the FCA hopes, will enable it to identify problems earlier and to act more quickly to address transgressions.

Supporting consumers

Hearing stories first-hand enables the Authority to identify and understand instances where consumers face, or could be open to, harm. This has been evidenced in the case of the British Steel Pension Scheme, where poor practices were flagged to the FCA by advisers.

Supporting financial advisers

The FCA will both learn and pass on lessons from its continuing work. It is, Gupta said, still seeing too many examples where advice falls short of its expected standards. This is particularly the case in:

• Fact-finding and recording clients’ needs and objectives
  • Spending time obtaining the objectives and needs
  • Capture and record essential information as per COBS 9 & 9A
  • Capture and record soft facts that add context to the client story
  • Differentiate fact finds across different clients or types of advice
  • Record client meetings
  • Challenge clients and offer alternatives
• Evidencing the alignment between the adviser’s recommendation and the client’s attitude to risk
  • DB transfers require a focus on investment risk and the client’s attitude to transfer risk
  • Research any tool limitations (ATR, Cashflow modelling, research)
  • Differentiate between ATR, Capacity for loss and Risk need

So, what can you do?

1. Check your Competence, Conduct and Culture: With The SM&CR around the corner, you need to ensure that client facing staff have the right blend of soft skills across and technical knowledge plus ensure a holistic review is undertaken during the fact-find process (i.e. move away from checklists) and ensure your firm puts the client at the centre of its services and operations.

1. Self-Audit and self-regulate: This means creating a culture for compliance where all departments e.g. Advice, Marketing, HR, Administration take responsibility for their role in client best interests. With the new regulatory accountability regime, firms need to ensure they have the right people in the right roles, with the right skills and responsibilities.
2. Employ RegTech: Technology that can allow firms to answer the question ‘Am I Compliant?’ confidently will ensure sustainable professional practice and firms show high value and retain and attract clients.

Please click the below icon link to MO®'s #RegTech platform and learn more about MO® today..