The results are in!

riskandcompliance Jun 5th, 2017

The FCA initiated their “Assessing Suitability Review” in April 2016 in recognition of the important role they have to play supporting the sector in delivering suitable advice.

The purpose of their review was to assess a statistically robust sample of advice files that allowed them to draw conclusions on the suitability of advice and quality of disclosure in the sector as a whole.

The review assessed 1,142 individual pieces of advice given by 656 firms against the suitability and disclosure rules in the Conduct of Business sourcebook (COBS). They found the following in terms of suitability:

  • • In 93.1% of cases, the sector provides suitable advice;
  • • In 4.3% of cases, the sector provides unsuitable advice; and
  • • In 2.5% of cases, the sector provides unclear advice.

The FCA consider that these are positive results for the sector, and are a result of the successful adoption of the Retail Distribution Review (RDR) by advisers and reinforced by their previous supervisory and enforcement activities.

The disclosure results were:

  • • In 52.9% of cases, the sector provides acceptable disclosure (i.e. the disclosure requirements have been complied with);
  • • In 41.7% of cases, the sector provides unacceptable disclosure (i.e. the disclosure rules have not been complied with); and
  • • In 5.4% of cases, the sector provides uncertain disclosure.

Whilst the overall level of unsuitable and unclear advice is low, the review tended to identify issues in two key areas:

  1. Risk profiling – Where firms were not considering or mitigating the limitations of the risk profiling tool they used or where the recommended solution did not match the risk the customer was willing or able to take.
  2. Replacement business – Where firms were recommending that customers give up valuable guarantees without good reason or where the additional costs appeared to outweigh the benefits of the recommended solution.

The FCA encourage firms to consider the finalised guidance published on risk profiling and on centralised investment propositions and replacement business which specifically sought to address these issues. Should firms identify weaknesses with their approach, the FCA expects them to consider what steps to take to address the issue identified and mitigate any risks going forward.

PFP was one of the selected firms to participate in the review, the result of which was ‘unacceptable disclosure’, in that a cash example of the charges the client should expect to pay was not set out clearly within our disclosure documents. This has now been rectified, and our documentation updated.

We are happy with our results as we take risk profiling and replacement business very seriously to ensure our clients receive best of best advice.