Living in a continuum
My role has meant that, for several months I have been spending a great deal of time thinking about what 'suitability' actually means in practice. Our advice must always be 'suitable', but since we have different organs of regulation which apparently have profoundly different opinions about definitions, it behoves the humble IFA to be as clear about the matter as is feasible, in this complex, ever-shifting world that we inhabit.
A little while ago, we came up with a graphic for one of our internal publications, which we felt was helpful. I have been looking again at this, and ended up tweaking it slightly, in order to try and reinforce the central message. Here it is...
Invariably, the nature of regulatory pressure tends to force advisers towards an emphasis on compliance. It is easy (and understandable) when one encounters cases where compliance takes over as the primary driver of everything, and the poor client seems to come a poor second within the overall focus. This kind of ideological framework boils everything down to checklists. I recall outbursts of exasperation from FSA officials back in 2006 when TCF was introduced, as quite a few large intermediary firms immediately turned this new regulatory initiative into fifty-point checklists. Old habits etc...
I think I'd prefer to see the advisory model as a continuum, comprising five main phases. These are not boxes to tick, they are a sequential series of disciplines which must be followed, if we are to arrive at a position where we have delivered the optimal financial outcome for the client. We're aiming to score 100% in terms of the 'suitability' of our advice. We know that may be a big ask, so the question is: what does it take to get as close as possible to that target?
The answer is to have a disciplined process, comprising a number of discrete phases, each one of which is entirely dependent upon the products of the preceding ones. That is to say, we have here a mechanism for arriving at the destination ('suitability') where the disciplines of the IFA deliver a cumulative benefit. Of course, the validity of the final outcome (at stage (5)) is dependent upon the robustness of the preceding four stages, but it is also the case that there is an increasing benefit derived from the consolidation of meaningful information and interim conclusions as you proceed from left to right. Anomalies in cashflow output from stage (3) are likely to highlight a weakness in FactFind data in stage (1). A risk/return mismatch when the adviser runs his DeFaqto Engage due-diligence at stage (4) may hint at an over-simplistic (or mechanistic) approach to risk-profiling at stage (2).
If you see the path to 'suitability' as a kind of continuum, then you have effectively got your error-checking built-in, and you are much more likely to hit your goal at the far (top) end. And it's worth emphasising, that ValidPath Members have all the necessary tools to help them manage this kind of process.