How to improve the suitability of your firm’s financial advice

PodcastIn a speech last week, the FCA’s Debbie Gupta, Director of Life Insurance and Financial Advice Supervision, explored how the suitability of financial advice can be improved.

Here we look at what she said and what actions you can take to improve the suitability of your firm’s financial advice.

Improving suitability in financial advice

Gupta 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. But this figure, although good in headline, 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.

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

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

  • A drive to improve standards
  • A focus on firms that cause the most harm
  • Work to help consumers understand what they can expect from their advisers
  • Helping advisers to improve by sharing the regulator’s learnings, with clear do’s and don’ts.

Improving standards

This stream of work has included publishing consultation papers and policy statements, and running workshops for advisers across the country. It is ongoing, with the latest consultation paper, on pension transfers, published in July.

Tackling firms that cause harm

The regulator plans to improve efficacy here via better use of the data and intelligence at its disposal. Rooting out persistently non-compliant businesses that increase the cost of compliance for all regulated firms will help to prevent harm to consumers and damage to the sector as a whole.

Targeting firms in a focused way, 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
  • Evidencing the correlation between the adviser’s recommendation and the client’s attitude to risk

The written version of the speech on the FCA website goes into more detail on what this means in practice, with step-by step actions financial advisers should take to ensure appropriate fact-finding, record-keeping and correlation between recommendations and the client’s risk tolerance or appetite.

Take some simple steps to improve the suitability of your own advice

  1. Look at your culture. In a previous blog, we explored the idea that achieving the FCA’s standards on suitability is all about culture. This is something echoed in Gupta’s speech, which encourages advisers to focus on fact finding not as a tick-box exercise but something that will genuinely improve the quality of advice delivered.

Ensure your firm puts the customer at the heart of its operations and converts its client care promises into action and you will be on the right lines. If the client’s best interests are at the heart of the process, they should be able to choose the best, most fitting solution.

  1. Self-regulate. The FCA is keen to move towards a culture where firms regulate themselves more; one where the regulator’s policing role evolves to more advisory, supportive one.

This means making everyone accountable for compliance. We’ve explored before why compliance should be everyone’s responsibility. And with regulation like the SM&CR mandating individual accountability, now is a good time to remind everyone in your firm of the role they play – starting with compliant financial promotions and extending to the very end of the sales process.

  1. Encourage collaborative working between Marketing and Compliance. You can help to create this collaborative environment by improving your processes around the review and approvals of financial promotions. Our 6 ways to make your compliance approvals process better has advice on improving your sign-off process. Many firms are turning to automated workflow systems to make this simpler, faster and more robust.

Creating a culture of compliance

As we highlighted above, a compliant culture is central to achieving the FCA’s standards on suitability – as it is to delivering on all the regulator’s requirements.

If you want a more in-depth look at how to achieve an ethos of good governance, you can read our whitepaper on the subject, How to embed a compliance culture into your business. It’s free and you can download it here.

Nothing in this document should be treated as an authoritative statement of the law. Action should not be taken as a result of this document alone. We make no warranty and accept no responsibility for consequences arising from relying on this document.

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