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Lessons in Suitability of Advice From the FCA

Debbie Gupta, FCA Director of Life Insurance and Financial Advice Supervision, spoke at a conference last week about how financial advisers might improve the suitability of their advice to clients and at the same time reduce the risk of client complaints (or at least improve the chances of successfully defending them).

She noted that “the foundation of suitable advice is getting to know your client and understanding their circumstances and motivations“. In practical terms, Ms Gupta provided some valuable “do’s and don’ts” that all advisers would do well to study.

Do’s

  • Spend sufficient time on the fact find, get detail on a client’s needs and objectives;

  • Capture and record essential information, including “soft” facts such as personal and family health issues which may be relevant to the advice to be provided;

  • Think about different fact finds for different types of advice;

  • Be brave, challenge clients and offer alternatives as clients may have misunderstandings and misconceptions.

Most interestingly, the FCA seems to have changed tact and now suggests that advisers may wish to consider recording client interactions as this would be the most robust evidence in the event of a complaint (which is quite correct from a legal perspective).

Client consent would generally be required for the firm to voice record and a relationship issue may arise if a meeting or phone call was to be recorded. But even if firms are not confident enough to go that far then the FCA suggests ensuring that the “client’s voice should still come through the fact find loud and clear, consider using the client’s own language and phrase.”

Don’ts

  • Don’t provide template objectives for clients to tick, each fact find should be as individual as the client;

  • Don’t use shortcuts and assumptions, advice should be based on up to date and accurate information;

  • Don’t approach advice with bias, think about the language used and the way advice is presented;

  • Don’t see fact finding as regulatory “tick box” exercise. Our experience is that this is often where advisers fall down when defending a claim or complaint. The fact find is central to demonstrating suitability and knowing your client. Make sure it is regularly updated and revised;

  • Don’t rely on “I just know my client” approach as a reason not to properly fact find and record (in detail) the results. The client file must capture all client information and demonstrate why the advice meets the client’s needs and objectives.

And most importantly, if a client cannot (or will not) provide the information an adviser requires, then advice should not be given as it will be almost impossible for the adviser to demonstrate suitability if that advice is subsequently challenged.

Comment

Some advisers might consider that this is all motherhood and apple pie.

But it would do no harm for all advisers just to check that they are meeting the FCA’s requirements and comply with both the letter and the spirit of the Conduct of Business Rules.

The FCA does not provide this type of guidance for no reason, it is an expectation of regulatory best practice and those who don’t meet the FCA’s standards risk not only an increase in client claims and complaints but possibly an unwelcome knock on the door from the FCA’s Enforcement Division

© Copyright 2020 Squire Patton Boggs (US) LLPNational Law Review, Volume IX, Number 266
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About this Author

Garon Anthony Litigation Attorney Squire Patton Boggs Birmingham, UK
Partner

Garon is a partner in the Litigation Practice Group. He advises clients across the full range of commercial dispute issues, including cyber liability/data breach, professional negligence, banking, pensions and insurance.

Garon regularly acts for clients who are subject to investigations or disciplinary proceedings by national and international regulators, including most recently the Financial Conduct Authority, the Financial Reporting Council and the Dubai Financial Services Authority.

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