21Oct

FOS chief urges firms to issue client-specific suitability reports

Caroline Wayman, the chief executive and chief ombudsman at the Financial Ombudsman Service (FOS), has urged advisory firms to tailor their suitability reports to the circumstances of individual clients, and not to rely exclusively on standard letter templates.

As an example of something which could be omitted from a suitability report, she highlighted firms who were including information about products not taken out in their reports. For example, if a client is recommended to invest in a unit trust, it is not necessary for the report to describe the features of other investment products which may have been possible alternatives, such as investment trusts and investment bonds.

On this subject, Ms Wayman said:

“It creates a greater risk that people will not read them and not get the information they need. The first thing to think about is how to help the customer get the information they need. The chances of us getting involved are so much less if people know [what product] they have got.”

Ms Wayman highlighted annuities and unregulated collective investment schemes as products about which a lot of complaints have been made in recent years.

The FOS chief also revealed that her ombudsmen are being asked to do shifts on the reception desk, dealing with enquiries from consumers who walk into the FOS offices. She also drew firms’ attention to the series of roundtable discussions her organisation is conducting in order to listen to concerns advisers have about the FOS. Holding these roundtable sessions was one of the recommendations made by the Financial Conduct Authority (FCA) and the Treasury’s Financial Advice Market Review.

Trade association the Association of Professional Financial Advisers is shortly to publish a guide for its members on the subject of suitability reports. The Association is currently discussing the issue of suitability reports with both the FCA and the FOS.

Many financial advice firms that produce long suitability reports say they do so to defend themselves against having complaints upheld by the FOS.

A desire to produce a robust defence document should the FOS be asked to adjudicate on the case often over-rides any thoughts of producing a more concise document that a client would be more likely to read, in spite of the well-known requirement for firms to treat their customers fairly.

However, given that the FOS makes adjudications on what it believes is ‘fair and reasonable’, it was always questionable whether they would be swayed by one sentence on page 30 of a 40 page report as evidence that an issue had been covered with the client.

According to the FCA, the only information that needs to be included in a suitability report is:

• The client’s aims and objectives
How the recommendation meets these aims and objectives
A balanced view of the main features and risks of the recommended products
• Whether advice was offered in all areas, or whether focused or limited advice was offered
• Reference to any need areas not addressed
A like-for-like cost comparison where the adviser is recommending that a new product is taken out to replace a new one

There has never been a requirement to include the following in a suitability report:

• Basic personal information about the client, such as their age, income and occupation
• Information that is available in other documents, such as the firm’s client agreement, or the key features document or illustration
• Detailed information about the recommended product providers
• Comprehensive descriptions of the features of products that were not recommended

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.