The FCA recently reported that 83% of suitability reviews were conducted as required, according to data it collated for its ongoing advice review. With this in mind, TCC has sought the opinion of wealth managers on these results; 72% stated that it was a better outcome than they expected, a further 26% indicated that it was in the approximate region they expected, and only 2% thought it was worse than they expected.

Although initially viewed as a positive result for the sector, the regulator’s findings should be taken with caution, as they are based on self-reported information rather than a qualitative evaluation of individual client reviews. Some of the work TCC’s experts have undertaken in this area highlighted cause for concern about the reliance on adviser attestation in particular. The quality and consistency of what those responding firms have done will differ markedly based on our experience and therein lies a number of risks for prematurely breathing a sigh of relief.

Evidence to categorise clients

The regulator has made it clear that it will revisit this topic later in the year, with the expectation that firms have evidence on file to substantiate the thoroughness of their suitability reviews. TCC also polled wealth managers on this topic, with 38% declaring they have all the evidence to distinguish which clients received their review; however, a larger proportion, 58%, attested to having just some of the evidence, while 4% reported having none at all.

The all-important question is what firms should be doing now to ensure they have the evidence in place that the FCA will now expect to see. TCC’s house view is that this should consist of a twofold approach: a backwards-looking piece and a forward-looking plan.

Reflect on the past, secure the future

TCC’s poll also asked wealth managers about the quality of evidence they had on file, with 62% confirming they had the relevant fact-find and evidential report backed up in their practise management system (PMS). 23% reported a checkmark in the PMS to indicate that the review had been received by the client, and a final 15% responded that their evidence was in a different format.

The FCA’s review categorised ongoing advice clients into three areas. Here, we consider what evidence is appropriate for each of these.

1. Clients that received their review as anticipated. The minimum amount of evidence you’ll need for such clients is up-to-date know-your-customer (KYC) information on file. In some instances, that may be a note saying the client has confirmed there would be no changes to their portfolio, but it’s vital to have evidence relevant to that time period. Furthermore, firms will need to have a report letter to confirm the client’s ongoing suitability.
2. Clients that did not engage. According to the FCA’s review, those clients who did not respond to or engage in a request for a review account for approximately 15%. TCC recommends maintaining documented evidence that clients were invited to engage in the process. This could include an email inviting the client to participate, even if they chose not to. Ideally, follow-up communications would be beneficial; however, at a minimum, we recommend having at least one email that clearly indicates the client was invited to take part in the process.
3. Clients that weren’t contacted for their review. The final category is those clients who were not contacted or given the opportunity to engage, for whom redress is now due.

When reviewing client interactions dating back to 2018, it is essential to categorise clients into these three distinct groups, ensuring this process is conducted annually. For instance, you may encounter a client who missed a review in 2019 and may opt out every other year or others who have not participated in reviews for five consecutive years. It is crucial to gather this level of MI to determine the appropriate approach for clients who have missed a single review versus those who have missed multiple. This retrospective analysis is crucial to enable your risk departments to determine the necessary actions for each client. Additionally, the FCA has clearly outlined its expectations and will focus on elements such as fair value assessments to evaluate a firm’s ongoing advisory processes, including disengagement strategies.

The ripple effect

The ripple effect that TCC’s experts have observed is often extensive, particularly in the production and utilisation of MI. In these instances, senior managers are required to effectively demonstrate their compliance with the senior managers and certificate regime (SMCR) alongside their board duties, providing sufficient evidence to confirm that these matters have been thoroughly considered.

TCC has conducted root cause analyses, examined underlying trends, and scrutinised situations that appear unusually favourable. Additionally, we have reviewed MI related to specific advisers, branches, and supervisors, especially where there is a history or pattern of clients not requiring advice. Consequently, there are significant considerations regarding conduct risk, system and control risk, corporate governance, and SMCR that firms must address moving forward.

Proportional expectation

Firms will be expected not only to carry out the backwards-looking piece of work but also to integrate sustainable practises for the long term. This includes closely examining your fair value assessments, ensuring that MI is reviewed regularly with appropriate actions taken, and implementing a thorough disengagement strategy for clients who meet such requirements.

It’s vital to ensure that, as a firm, you’re confident that the client data you have is robust enough to mitigate the need for a past business review in the future. The clarity of chronology and frequency of client contact, or attempted client contact, along with notes on the medium used for this contact, are all vital components to achieving this successfully.

Objective expertise

In today’s ever-evolving landscape, tapping into independent expertise is a savvy move for forward-thinking firms. It’s crucial for ongoing advisory providers to showcase their commitment by consistently conducting annual client reviews backed by thorough documentation.

Our regulatory specialists at TCC are partnering with wealth management firms to streamline compliance and enhance your operations. Our seasoned experts deliver tailored compliance solutions, including:

• Insightful analysis and strategic guidance
• Cost-effective outsourcing solutions for projects of any scale
• Agile resourcing to swiftly expand your team with top interim resource

Contact us to discover how we can empower your firm to deliver and confidently demonstrate reliable client reviews.