The Assessing Suitability Review
The FCA has, this week, published the results from what has actually been quite an extensive review of the quality of advice delivered across a range of contexts. In the past, the Regulator has received some criticism for the narrow focus of its thematic work - this review assessed 1,142 individual pieces of work, delivered by 656 firms, and measured the quality of the advice against the FCA's own suitability and disclosure rules in COBS.
So, first to the good news. In respect of the overall suitability of the advice given, the FCA found that 93.1% of cases assessed did demonstrate that the advice was suitable (4.3% of cases were unsuitable, and 2.5% cases were 'unclear'). My somewhat cynical conclusion would be that if something is unclear, then it's not likely to be suitable. If advice is suitable, then it is clearly suitable - a lack of clarity is generally evident when the Adviser is otherwise unable or unwilling to demonstrate the right outcomes. Never-the-less, personal cavils aside, this is a good outcome.
The less good news is when it came to assessing how regulated firms went about their required disclosures. Only 52.9% of cases demonstrated (from the FCA's perspective) acceptable disclosure. Some 41.7% of cases were deemed unacceptable (and 5.4% were 'uncertain'). Again, I feel the FCA in having this third category is perhaps being over-generous towards intermediaries: clarity seems to me to be an essential ingredient when it comes to disclosure. Disclosure that is 'uncertain' is actually no disclosure at all, and begins to resemble obfuscation. It is worth noting that when the FCA was considering Firms' performance in this area, they looked at three components:
Initial disclosure (CIDD and RCA)
Product disclosure (information supplied about the recommended solution), and
Disclosure within the Suitability Report
Of these three, the first was the chief culprit. Firms tended to disclose charging structures with wide ranges (meaning the client would struggle to identify what was relevant) and/or would disclose hourly rates without indicating how long a piece of work might take to conclude. Now, that's not a particularly client-friendly practice, but it is worth observing that Law Society members the length and breadth of the land do precisely that, and apparently nobody is holding them to account. ValidPath Members have access to a Retail Client Agreement
template that allows the Adviser to disclose to the client precisely how much will be charged, what the client receives for his fee, and how it will be collected - this helps dispel any residual ambiguity which might linger after the provision of the admittedly generic CIDD.
In the instances of either unsuitable or unclear advice, the FCA found that this tends to revolve around two aspects:
Risk-profiling: a somewhat thoughtless, or ambiguous or simply disconnected approach to assessing risk, resulting in a poor matching to a recommended solution;
Replacement business: where insufficient reason was given to support the giving up of valuable guarantees, or where additional costs appeared to outweigh the benefits of the replacement contract.
There were a couple of other intriguing observations in the FCA report. In respect of both
the suitability of advice, the FCA found that Members of Networks were performing at a significantly better level than their directly-authorised counterparts. This precisely matches our own experience: the good Networks are supporting a generally more robust and compliant advice process, and (generally) foster a culture where these things matter. The DA market is, by comparison, a bit like the Wild West.