Do you need to include other products considered but discounted in your suitability reports?

Do you need to include other products considered but discounted in your suitability reports?

Ed Evans

Whether suitability reports should include a summary of all possible products that could in theory have met the client’s objectives together with the reasons why they were not recommended has been hotly debated amongst advisers, paraplanners and compliance officers for many years now. Without any clear guidance on this matter, some compliance departments have made this a mandatory inclusion for their members, whilst others have taken the view that provided the reasons why the recommendations are appropriate for the client’s needs are clearly explained then this shouldn’t be necessary.

Well, following Rory Percival’s informative and well-received presentation at the recent IFP Paraplanning conference we now have a definitive answer. During his presentation he was quoted as saying:

Rory Percival FCA Technical Specialist

“We often see suitability reports with all the products that aren’t recommended and why they haven’t been recommended. This is a myth. You don’t need to do that one; you can scrap that whole section.”

Rory Percival – FCA Technical Specialist

However, before we all get too excited and dispense with this section completely, I would bring to your attention to the following:

1. RU64 – This is a specific FSA/FCA rule requirement that still exists and requires an adviser to explain to a customer in writing why the pension they are recommending is at least as suitable as a stakeholder pension.

2. Other Solutions – No reference was made to what I would call “other solutions”. For example when recommending the switch of a pension plan which has a transfer penalty and regular contributions being paid into it, I am sure that the FCA would still consider it good practice to consider and discount making the existing plan paid-up and redirecting the regular contributions to a new plan. Therefore if this isn’t being evidenced in the suitability report then it needs to be included within the client file.

3. File Notes – Leading on from the above although it is clear that other products do not need to be included in the suitability report, my understanding from comments made by Rory Percival at the Association of Professional Compliance Consultants annual conference earlier in the year is they do still need to be discounted as part of the research process and this needs to be evidenced in some way e.g. via a file note in the client file. (A big thank you to Mel Holman of Compliance & Training Solutions for sharing her notes on this one.)

So given this guidance, what changes can you expect to see within Genovo? Well the short answer is very little! We’ve always questioned the sense of including reams of information about other products discounted in a suitability report and seen it as a major contributing factor to why over the years they have acquired the ironic label “reason why not reports”. However, at the same time we have also recognised the need to address the points highlighted above, and been conscious that some of our users have needed to cover this area extensively to fulfil the expectations of their compliance department. Hence why Other Solutions has always been (and will continue to be) an “intelligent” step within Genovo i.e. If no Advice Options are selected for this step, no reference to Other Solutions Considered but Discounted is included in your report.

Suitability Report Other Products Discounted

I would like to finish off by saying that I believe that any attempt to make suitability reports more reader-friendly and engaging should be actively encouraged; and the FCA, and Rory Percival in particular, should be applauded for their recent efforts to communicate to adviser firms exactly what it is they want to see. In fact, during his presentation Rory Percival went on to dispel a number of myths that have grown up over the years around what should be included in a suitability report. You’ll find an excellent summary of his presentation on the Adviser Business Review website – you can read it here.

Over the course of the next few weeks I’ll be writing a series of blogs which explain how the Genovo suitability report app deals with all of the points raised. If you don’t want to miss out on our future posts – subscribe to our blog using the subscribe via email form at the top right of this page, and get email alerts whenever we post.

Learn how to make your suitability reports more reader-friendly and engaging.

Click here to download our free suitability report template containing helpful tips. Image courtesy of bplanet / FreeDigitalPhotos.net

Written by Ed Evans

Ed heads up operations at Genovo, and makes sure everything runs like clockwork! He's been involved, in one capacity or another, in writing suitability reports for over twenty years. Having started out as a paraplanner, he achieved the AFPC (as it was known way back then) whilst working as a financial planner with Sedgwick Financial Consultants in London. On returning to his beloved home town of Shrewsbury in 2002, Ed set up one of the very first outsourced paraplanning companies in the country. It was then that he saw the opportunity to combine his experiences of suitability report writing with his love of technology, and in 2008 he co-founded Paraplanning Online. The rest, as they say, is history.

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5 thoughts on "Do you need to include other products considered but discounted in your suitability reports?"

  1. Gaynor Newman says:

    Having attended an FCA Positive Compliance workshop, the FCA confirmed there is no need to detail and discount everything but only the “obvious alternatives”.

    1. Ed Evans says:

      Thanks for your comment Gaynor. I guess what you’re saying here is that you don’t for example need to discount a VCT and a UCIS every time you recommend an ISA. However, if you’re recommending an investment bond for example and there is no evidence that an ISA’s been recommended for the current tax year, then the reasons why what on the surface of it would appear to be a more tax efficient and “better solution” hasn’t been recommended should be evidenced in the SR or on the client file….It’s kind of common sense isn’t it?

  2. You make a valid point Ed, the report confirms the advice including the peripheral considerations such as those you mentioned. I would agree that a list all of the possible alternatives doesn’t really add to the integrity of the advice but it does unnecessarily bulk out the report and make it less appealing to clients.

    1. Ed Evans says:

      Thanks for taking the time to add a comment Clive. To be fair there’s a lot of good suggestions like this coming out of the FCA at the moment which will only help control length and ultimately make suitability reports more reader-friendly and engaging – a win-win for all concerned me thinks!

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