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Periodic Suitability Assessments - Have Elements Been Overlooked?

With all the palaver that’s going on in the industry right now and the press reporting on significant provisions for potential redress where service isn’t seemingly being delivered, you could be forgiven for thinking advice firms aren’t delivering Periodic Suitability Assessments (PSAs). Based on our experience the issue that hit the headlines in the last week or so isn’t unique. 

We’ve been highlighting the need for firms to deliver ongoing suitability assessments since well before the regulation was first introduced. Notwithstanding existing contractual arrangements, the requirement to offer a service (often completing a review) has been there since clients agreed with their adviser to pay ongoing remuneration (be that pre-RDR trail or post-RDR OAC). MiFID II made the provision of a PSA a regulatory, as well as a moral requirement. 

“It’s important to regularly review your plans to make sure that they remain on track” is the mantra that has been the footnote to gazillions of suitability reports - so most firms should in theory not find it unreasonable to be expected to deliver something that they have suggested in the first place. 

But do they?

Rules contained within COBS 9A not only spell out what’s required, but they also specify when and how often PSAs are required, and it’s these latter aspects that we think have slipped under the radar in many firms.

The obligations as far as assessing suitability are concerned are contained within COBS 9A.2.1 - but it’s COBS 9A.3 where we get to the nitty-gritty. Incidentally, (quick plug) every assessment of suitability requires the issuance of a suitability report

COBS 9A.3.8 states that: 
Investment firms providing a periodic assessment of the suitability of the recommendations provided under Article 54(12) shall disclose all of the following:

1.     the frequency and extent of the periodic suitability assessment and where relevant, the conditions that         trigger that assessment;
2.    the extent to which the information previously collected will be subject to reassessment; and
3.    how an updated recommendation will be communicated to the client.

But the message hits home in COBS 9A.3.9 with:

Investment firms providing a periodic suitability assessment shall review, to enhance the service, the suitability of the recommendations given at least annually. The frequency of this assessment shall be increased depending on the risk profile of the client and the type of financial instruments recommended.
We urge firms to take note of the “at least annually” bit, but also the last sentence - the frequency of this assessment shall be increased depending on the risk profile of the client and the type of financial instruments recommended.

What does that mean in practice?

If a PSA is required (and this will be the case if it’s linked to ongoing remuneration) it must be conducted at least annually. That doesn’t mean 13, 14, or 15 months since the previous one, it means within 12 months. If the firm can’t meet the client for whatever reason that obligation remains.

Adapting internal processes and the use of a desk-based PSA could be a potential solution. If you need assistance with this please contact us.

As noted in the rules, for some clients a PSA is required more than once a year, depending on their risk outlook and/or the financial instrument(s) they’ve been recommended. It’s really up to firms to decide here as the rules don’t specify, so you need to decide what risk profile and what type of financial instruments are involved here but don’t forget that there are two ends of the risk spectrum and the rules don’t specify which end.

Firms should revisit their service propositions considering the practical ability of clients to engage with them (post-sale) balanced with the regulatory need for an annual assessment.

There are anomalies of course, think about a Business Relief arrangement that has locked a client into a minimum two-year timeframe, but the firm is receiving an annual adviser charge, how is this justified? Firms need to decide what types of financial instruments need a more frequent overview. We can help with this too.

Did we see this coming?

Whilst the fertiliser may have hit the whirly thing in the last couple of weeks, MiFID II rules came into effect on 3 January 2018. That was six years ago, so it’s fair to say that firms have had plenty of warning.
In a recent survey (sent to 20 larger firms) the FCA wanted to know the number of reviews that were scheduled, the number completed, and the number of clients who received a refund when reviews weren’t done on time/were missed. If your firm receives a similar data request what will your responses be?

Our View

We know first-hand that the FCA has the bit between its teeth on this. Perhaps a long time coming but the recent headlines will send shock waves across many firms.

Whilst the pinks may convey the message that the FCA is having issues with percentage charging, in our view it has more to do with firms being able to justify what they charge by articulating their service clearly and then delivering a service that is both suited and valued by the client. Just because your firm hasn’t received any complaints doesn’t necessarily mean that everything is hunky dory. 

Does every client need to sign up for an ongoing review service? If so, have some firms painted themselves into a corner by having to deliver the service they agreed, but to clients who in reality, just aren’t profitable?

Whilst, most firms continue to adapt to the changing landscape and many of ours do, some are still operating the same model as they have since RDR, so many may need a rethink.

How long before the phone rings or an email lands with a client asking what they receive for the ongoing advice charge? Citing regulatory, PII, staff, and back office costs aren’t likely to mean much, and in reality, most clients aren’t bothered about the firm’s overheads, they’re focused on what they pay.

Author -  Paul Jay, Senior Compliance Consultant

How can we help you? 

Thistle Initiatives has supported adviser firms for over 10 years as a trusted compliance and regulatory advisor. In addition to assisting firms as-and-when, our team of specialists can serve as your right hand in meeting and complying with FCA regulations. We understand the importance of staying up-to-date and compliant and are dedicated to providing the guidance and support needed to do so. 

Please ensure that your processes, systems, and controls are robust and in particular, the firm’s price and value assessment is sorted. In many firms, this has either received lip service, or firms think that what they’re already doing needs no attention, which is fine if it can be justified, but not if it can’t.

If an unsolicited data request lands in your firm’s inbox, will you be able to provide the response required within ten working days? If not, doing nothing isn’t an option.

Get in touch with us by calling 020 7436 0630 or sending an email to