Is your firm meeting the FCAs requirements around suitability of advice?

03 June 2020

By Natalie Harrison, Head of Investment Marketing

Whilst most firms will cover off suitability of advice as standard, ensuring you have a standardised process, reviewing and assessing the quality and suitability of advice on an ongoing basis and having the right controls and measures in place can be a burden. In this article Elaine Parkes, Head of Proposition Development at Signature addresses three key questions wealth managers and advisers face when considering the FCAs requirements.

Q: In your opinion, what are the current 3 key regulatory challenges advisory firms and wealth managers face and what impact do they have for their businesses?

EP: Suitability of advice remains a core regulatory requirement and a key challenge for many advisory firms. Advisers must demonstrate ongoing consistency of advice suitability, ensuring their advice meets their clients’ expectations of risk and return. Furthermore, advisers must outline their procedures in place to maintain risk-aligned and suitable client portfolios. Firms must demonstrate the ability to stress test their centralised investment process through thorough and robust procedures; showcasing their competence to identify and resolve any potential concerns.

Advisory firms must ensure that they meet the regulators ongoing requirements for adequate PII and Capital Adequacy cover. Firms face many challenges in having to demonstrate that they have the correct systems, controls and procedures in place in order to demonstrate to the PI insurer that the firm can mitigate any potential risk.

Finally, access to sufficient and accurate Management Information (MI) presents many key challenges for advisory firms. Reporting of MI is a key tool for controlling and understanding regulatory risk. If the senior management team within a firm do not receive adequate management information to satisfy the discharge of their responsibilities to the board then they risk not meeting regulatory requirements and thereby exposing the firm to added risk.

Q: Considering the FCAs requirements on PROD; why have many firms overlooked the regulation and what impacts can this have on their business?

EP: PROD, as you know, is not new. It is in the rule book and was referenced, although not specifically, in FG12/16 which is over 7 years old. Why was it overlooked is an interesting question; I don’t believe it was.

Firms practice PROD without even realising – an adviser should naturally understand a client’s wants and needs through ‘know your customer’. Then, by applying the most appropriate financial instrument(s) to meet those needs, advisers are adhering to PROD. From our experience, however, the issue comes from firms not documenting their processes in enough detail, meaning that even though PROD is implemented in the advice process, it is not specified and therefore cannot be evidenced. A firms Centralised Investment Proposition (CIP) should have processes that satisfy PROD documented in high detail, as PROD, if implemented correctly, should make the advice process both more focused and efficient. At Signature, our team of leading compliance experts can assist any firm with the proper implementation PROD regulatory requirements.

Q: Can you explain the journey you take customers through when it comes to meeting the FCA’s ongoing requirements on suitability of advice?

EP: The Signature Solution is backed by the UK’s largest and number one support service provider, The SimplyBiz Group, and as such we are able to provide firms with an enviable array of support and experience, which we call upon to ensure the firms we work with have the very best the industry has to offer.

Our approach to Suitability considers five key aspects:

1. Audit/Review of the sales process. We initiate our review with an audit that encompasses all aspects of the sales process, from fact-find, investment objectives and risk appetite to capacity for loss & suitability.
2. A review of any systemic failing over reliance profilers without assessing output. To support this review, we engineered and designed CENTRA, a cutting-edge end-to-end investment advice system that incorporates sophisticated Risk Profiling tools, whole of market research and the ability to create your own bespoke CIP.
3. We consider customer outcomes, reviewing both pre and post-sale files, providing the advisory firm with relevant feedback and grading.
4. We provide MI reports with data regarding the trends in advice, outcomes, grades and concerns for the firm. This detailed feedback is provided to ensure correct and suitable outcomes, with a further training plan created and implemented where required.
5. We incorporate training and testing for both existing and new advisors to ensure they understand the sales processes. We can conduct skills assessments; role plays and 1:1s and provide working papers on these topics with telephone support and guidance.

If feel that your firm could benefit from a more specialised and tailored compliance and business support service, then please get in touch and we can arrange a virtual chat to talk through what you are looking for and how we could help. You can reach us on 01484 443 431 or email us at info@signature-support.co.uk.