FCA Suitability Report Guidance: What does the regulator expect from you? Part II

FCA Suitability Report Guidance: What does the regulator expect from you? Part II

Ed Evans

IMPORTANT – This user tip relates to an older version of Genovo. Although much of the content and many of the concepts still apply to the current version of Genovo, the screenshots and some instructions may no longer be accurate.

The FCA has recently updated their Suitability Report Factsheet. This factsheet is essential reading for individuals who prepare suitability reports and / or monitor the quality of suitability reports prepared by others. It provides guidance under the following headings:

1. What does the FCA expect from you?

2. Good practice examples.

I thought this would be a good opportunity to have a recap of the points raised and highlight how Genovo deals with each of them. Last time I covered what does the FCA expect from you?, and this week  I’m going to look at the good practice examples provided in the factsheet.

1. When preparing and issuing suitability reports, remember that customers are less likely to consider the recommendations being made if the report is too long.

This is an extremely hot topic at the moment given Rory Percival’s recent comments re: the length of suitability reports. Unquestionably suitability reports shouldn’t, and don’t need to be 50+ pages long – even if the more generic, “bottom covering” stuff is reserved for the appendix. However, I can’t help thinking that too much emphasis is being placed on length and we should be looking at the bigger picture i.e. how to make suitability reports more reader-friendly and engaging. Length is obviously one key aspect of this; but format, language, grammar, structure and styling are equally important.

For what it’s worth (and I appreciate this is completely subjective) I believe a well-structured, professional and visually engaging REPORT that makes use of lots of white space is not only a very effective method of communication, but can also enhance a company’s brand. And if the end result is a few more pages than a basic letter then so be it.

Check out our series of blogs to learn how you can make your suitability reports more reader-friendly and engaging.

2. Give a clear summary of the customer’s objectives, needs, priorities and relevant existing investments, demonstrating the adviser had taken account of these.

It is not acceptable to use generic, stock objective statements which frequently remain unchanged e.g “The investment of a lump sum to provide capital growth over the medium to long term”. Within Genovo you are prompted to personalise the wording of each selected objective and add comprehensive Know Your Client information to it. This information should create a clear link between the client’s objective(s) and the advice reasons selected in the recommendation sections, and in turn help support the suitability of the product(s) you’re recommending. This is a powerful and effective way of personalising your suitability reports. Here’s an example of what I mean:

Review your expenditure and income needs

Since retiring you have noticed that you are “slowly eating into your savings”, which has not been helped by the additional financial commitment involved in putting your son through university. Having undertaken some cashflow modelling, I have calculated that your outgoings currently exceed your combined net income by just under £4,000 each year. However, assuming your costs remain broadly the same, this shortfall will be more than covered by your State Pension which you will start to receive from June 2017.

Invest a lump sum to provide an income

You currently have £120,000 invested in various deposit-based accounts. You wish to retain £20,000 within your current account to act as an emergency fund, but would like to invest the residual £100,000 to alleviate your current income shortfall, whilst protecting the underlying capital. You have specifically requested that the income is paid monthly.

Review your existing investments

You have asked for my advice regarding an endowment plan you took out with Legal & General many years ago in connection with your mortgage. If appropriate, you have also requested that I put forward a recommendation for the reinvestment of these monies.

Listing the objectives in their order of priority to the client is not only good practice, but also reassures the client that you appreciate what’s really important to them. Within Genovo you can apply a display order to each selected objective which determines the order they are presented within the report.

Regarding the area of “relevant existing investments”, users of Genovo are prompted to provide a brief overview of any existing arrangements which could, in whole or part, help satisfy the client’s objective(s).

3. Use bold text to highlight key risks and changes associated with the recommendations.

Genovo employs a number of different formatting styles (including bold text) and techniques to highlight key / important information.

4. Use the customer’s own words taken from file notes, to make the recommendations more relevant.

Genovo is completely customisable and allows users to create highly personalised, client-specific reports. It is possible to customise any of the standard advice reasons with the client’s own words, and users are actively encouraged to add the client’s own words to the Know Your Client information within the Client Objectives step of the Introduction section.

5. Send reports to customers before the second meeting and fully discussed at the meeting.

The Genovo reports are deliberately written in the present perfect tense (e.g. I have recommended a NISA…). This gives the recommendations a continuing relevance, and means the report can be issued to the client pre or post the implementation of the recommendations.

6. Use bullets instead of long sentences

Genovo avoids the bulky generic paragraphs typically associated with software generated reports and employs a punchy format (including the liberal use of bullets) which ensures the report is easy to read and understand.

I hope you’ve found that useful. Did you know we’ve created a handy checklist that summarises the regulator’s current guidance in respect to the content and format of a suitability report  in one quick reference resource? You can download your copy here.

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