Chris Hewitt, technical specialist at the Financial Conduct Authority, told 130 Paraplanner delegates in a presentation on 'Suitability and Disclosure – What you need to Know' that the 2016 review was a useful insight and it would be carried out again in 2019 after some shortcomings were found. Overall Mr Hewitt said the key findings of the review were more "encouraging" than negative but firms should begin to get ready for the next review as there were several areas of advice that needed attention now.
Mr Hewitt said that while 93.1% of advice cases reviewed were found to provide suitable advice, unsuitable advice was given in 4.3% of cases, a significant number. As part of the 2016 review the FCA reviewed 1,142 advice cases from 656 firms. It looked mainly at these types of advice: investment, pensions and retirement income.
The FCA decided to carry out the review following the introduction of the pension freedoms and post the RDR changes and the 2019 review will follow other changes including FAMR and Mifid II.
Mr Hewit said in some cases there were shortcomings found in last year's review and the FCA was "disappointed", for example, with how some advisers explained charges to clients. There were also signs that some advisers were struggling with disclosure and there were also concerns about client risk profiling assessments. Firms needed to give attention to these ideas to demonstrate improvements by 2019.
Mr Hewitt said the FCA's main aim with its reviews was to check good advice was being delivered and to make sure recent financial regulatory changes were being implemented correctly, not to crack down on the financial advice sector.
He said: "We all want firms supporting customers facing complex and varied decisions; striving to provide advice that delivers good outcomes."
He looked in detail at risk profiling and said advisers could do more to assess client attitude to risk and there was more to risk profiling than simply using tools to assess client capacity for risk or loss.
"Risk tolerance is subjective and all about how a client 'feels' about risk," he said.
He spoke positively about cashflow modelling, used by many Paraplanners and Financial Planners, and said it could be a good way to "stress test" any financial plans or assumptions.
Turning to the issue of charging, he said where the FCA found significant difference between generic charges quoted to all clients and the specific charges paid by some clients, the FCA would ask for an explanation on why there was a difference.
On suitability reports he called for Paraplanners and Financial Planners to do more to "personalise" reports for individual clients as customers were more likely to read and engage with reports especially produced for them rather than generic reports which sometimes looked just like a list of "terms and conditions," he said. He added, however, that the FCA's review found that 92.8% of suitability reports were up to standard in terms of meeting the rules which was pleasing. He said they should be "clear, fair and not misleading" and "avoid unnecessary repetition."
Mr Hewitt was giving a keynote presentation at the CISI / IFP Paraplanner Conference 2017 which took place today at the Jurys Inn Hotel and Conference Centre at Hinckley Island, Leics. The annual event under the banner this year of "The League of Extraordinary Paraplanners" had a superhero theme, inspired by the similarly-named movie.
The CISI Paraplanner Interest Group put together the agenda.