The Financial Conduct Authority (FCA) is currently compiling data gathered from 1,000 client files, from 700 financial advice firms, with the goal of addressing the suitability of advice in the sector. Smaller firms are the most targeted in the exercise, though larger companies will have to provide a greater number of files for review. So what does the FCA want to achieve?
Looking at processes in more detail
At the moment, it is expected that the FCA will produce reviews that focus on suitability reports, along with assessing the ways in which financial firms are recording their processes, including research and investment. The initial concern was that reports would recommend guidelines for best practice that would restrict many firms, though this issue hasn’t been given any credibility. Concerns of this nature arose in line with the regulator’s previous stance on firms being too prescriptive in their advice. More recently, though, it has been extremely positive in its comments towards industry professionals, particular with their efforts in adopting technologies like back office systems for IFAs.
What are the expected outcomes?
So what can firms expect? The FCA is likely to recommend that suitability reports are kept friendly in their tone, through using visually-engaging content like images and charts in place of blocks of text. The inclusion of an appendix in documents is also likely to be encouraged, so that the bulk of the information is focused on what is being recommended.
In addition to expanding on the most vital information in appendices, the FCA is likely to recommend that irrelevant information be omitted. While this is arguably something that should already be in practice, it has been observed on occasions that all risk descriptions have been included. This isn’t necessarily helpful to clients that don’t need a complete run-down of risk policies and background. Companies such as http://www.intelliflo.com/ offer back office systems for IFAs, which may prove useful in adopting the best practices suggested by the FCA’s reviews.
Keeping consistent is important in life, and even more so in the financial sector, when dealing with potentially sensitive information. Regardless of who writes the suitability report, information within it should always be consistent in its content and tone. Whatever the result of the FCA’s reviews and subsequent findings, it is most likely to be positive for the industry.