Many financial advice firms that produce long suitability reports say they do so to defend themselves against having complaints upheld by the Financial Ombudsman Service (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, the lead ombudsman at the FOS has now cast doubt on the benefits of producing long reports. Caroline Mitchell commented:
“The report doesn’t have to be the length of ‘War and Peace’ – the consumer won’t read it if it is – but it needs to explain why that particular product is right for that particular consumer at that particular time.
“Risk warnings are most effective when they are directed at that consumer in terms of the investment being considered, rather than being lost in some small print.”
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 Financial Conduct Authority, 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
• 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
The regulator recommends using bullet points rather than long sentences to highlight important information, and if firms want to include generic technical information, they can put this in an appendix at the end.
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
Other issues mentioned by Ms Mitchell were that the FOS uphold rate for financial advisers was just 40% in the last financial year, below the uphold rate of for all cases considered by the Service; and that advisers should not worry about the risks of insistent client business provided that the file clearly documented the reasons for the adviser’s recommendation, the client’s reasons for disregarding this advice and the risks the client is taking in going against the recommendation.
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.