latest Content

FCA’s Percival further clarifies regulator’s view on suitability reports

Rory Percival re-iterates that products not included in the advice given do not have to be listed in the suitability report or on the client file

Rory Percival has provided further comment around inclusion of the products and investments not recommended in the advice given, in suitability reports and the client file.

Speaking to an audience of paraplanners at yesterday’s Paraplanners’ Powwow, FCA technical specialist Rory Percival was responding to a question off the floor relating to concerns raised at last week’s PFS Purely Paraplanning conference around the FCA guidance on this issue. The concerns were based on alleged comments made by FCA supervisor(s) on the ground and in relation to potential future rulings by the Financial Services Ombudsman (FOS).

Percival said: “I can’t say that a supervisor has ever not said you might want to think about putting in what you haven’t recommended and why. But in broad terms there are three levels of what we say:

1. Rules: “If it’s in a rule you must do it – and here we use the word ‘must’.”

2. Guidance: “This sits alongside the rules and includes things you should do. There’s a difference between ‘must’ and ‘should’. You don’t have to do what it says in the guidance. Guidance relates to a rule. If you achieve a rule by another means that’s fine. What guidance means is if you do it that way you’re in safe harbour.”

3. Good practice: “This is stuff we’ve seen other firms doing which you might want to think about doing – you can do it or you can not do it, it’s entirely up to you.”

Referring to the inclusion in a report of products not recommended, he said: “It may well be that supervisors have said in the past that it is ‘good practice’ to do it – but you don’t have to and you won’t get into trouble if you don’t do it.”

He added that supervisors “are all different” but the FCA does have mechanisms in place “to ensure we are as consistent as we can be.” He stressed: “If there have been issues in the past I don’t think it’s an issue now.

“So going forward, if you don’t put that section in you won’t have a problem if you are communicating what you must communicate: The client objectives, what you’re recommending and why that is suitable for the client, and the disadvantages,” he said.

File notes

One way of demonstrating suitability was to have a record on the client’ file, Percival added. “Not everything needs to be in the suitability report. You can demonstrate suitability by having things on file as well.”

However, for clarification, he added that it was not necessary to have on file every product that was discounted for recommendation. He said: “You don’t need to have on file ‘these are all the things I discounted’. You do need to be clear why you’ve recommended what you’ve recommended.”

Giving an example, he said: “In some situations, such as when you haven’t recommended an ISA, you’ve recommended an Oeic or an investment bond instead, then there is going to be an obvious question mark for the FOS and us saying ‘Usually people do ISAs first, for tax planning, why haven’t they done an ISA?’ So you would want to explain that. But you don’t have to have the full list of all the different things you haven’t recommended, so long as it’s clear why you’ve recommended what you have recommended.”

He added that while the FCA had seen “a lot of improvements in recent years” in respect of content of suitability reports, “if there is one criticism still it’s that some of the information on file is quite generic. So while there might be a client’s individual circumstances there, the objectives might be generic. An expression I use for some of the objectives I see is that they are quite ‘solution focused’. Things like, ‘you want to have your money managed by a discretionary manager’. That’s not a client objective,” he said.

Discrepancies between the FCA and the FOS

A question was raised from the floor about potential differences in view between the FCA and the FOS. Percival re-iterated points made at other conferences that he did not believe this was so. He said: “The point I was making is that if there was a fundamental difference between the Ombudsman and ourselves that would manifest itself in widespread differences and there is no evidence of that.

“If you look at the FOS decisions published for the past four to five years – I’ve read quite a few of them and I haven’t disagreed with any of them as yet – they all seem to align with what we believe in within different scenarios.”

Percival said that the FCA was presenting at Personal Finance Society (PFS) events around the country where the FOS was also showing a video that talks about its views of suitability reports, insistent clients and other key topics. “The video is basically saying the same as what we say, that there aren’t widespread differences between the Ombudsman and ourselves.”

Percival did admit that there was always the chance for individual discrepancies because of the “human factor”. He said: “The Ombudsman is staffed by humans, the FCA is staffed by humans and there will be differences between humans in dealing with a subject that is as subjective as suitability. So you might be able to pick up on an individual case that appears to contradict what the FCA has said. But that’s not the point; the point is that there are no systemic differences between the Ombudsman and ourselves.”

See also:

‘What Rory Percival is saying is not fact,’ says compliance director’

Financial Ombudsman’s viewpoint on suitability report writing

Suitability report content – Percival clarifies what the FCA expects 

More Articles Like This