Suitability has been a watchword in regulatory circles for a while now.
Clearly, suitability reports play a key role in demonstrating the advice you are giving to clients is tailored to their goals and their circumstances.
They serve a number of purposes: as a formal record of your client conversations, as a way of gauging and confirming client understanding, and as evidence of your advice process for the FCA and, should it come to it, the Financial Ombudsman Service.
But sometimes it can be hard to strike the balance between documenting your advice in ways clients can relate to, and evidencing suitability for regulatory purposes.
Having seen suitability reports in a variety of shapes and sizes over the years, here are some tips from my perspective on writing reports that clearly get your message across, in a way that resonates with clients.
1) Don’t be afraid to say what your client actually approached you about
Often, I see advisers documenting that the client came to them because they wanted a managed portfolio aligned to their attitude to investment risk, or something along those lines.
Is that really what they asked you for?
Maybe the conversation was more along the lines of: “I have all of these pensions. I'm approaching retirement and I don’t know what any of it means, and whether or not I can afford to retire?”
What is wrong in saying that in a report?
If other needs are identified during your fact-finding process then it's fine to say that.
For example: “You came to me for X, but during our conversations we have identified that you are also concerned about Y.”
2) If a client doesn't read it, is your report fit for purpose?
If you produce a document akin to War and Peace (or what's more informally known as a 'covering your back' exercise), chances are the client probably isn't going to read it. This makes the suitability report itself unsuitable.
An unsuitable report stands you in worse stead with the regulator than if you had simply covered what you needed to cover.
Your reports should be short, to the point and engaging.
If something is suitable, it is suitable; it doesn't require reams and reams of pages to justify it.
3) The issue of client details
The FCA suggests you don't need to put personal details about your client in your suitability report.
I'd agree on the basis that while you may ask your clients to check your fact-finds, many don’t.
But while the regulator says you don't need to put in personal details, we like to.
We provide a few lines for extra context, as I think the report is a good place to provide a really high-level overview of the client's circumstances.
"X and Y (clients' names), you are xx and xx years of age respectively, married with two children, (include children's names), who are financially independent of you.
"X, you are employed as a .... and Y you are employed as a ...., the combined income from which covers your regular ongoing expenditure. Your only outstanding liability is your mortgage and you have sufficient cash reserves that you can access in the event of an emergency.
"You both consider yourselves to be in good health and neither of you smoke.”
This gives the client the opportunity to say whether or not the information has been gathered correctly or not.
If clients are checking their report, if something is wrong at least they have an opportunity to correct it. At the end of the day, who doesn't like reading about themselves?
4) Layout matters
The layout of a report is very important.
We believe in brevity.
The first few pages should outline what the client’s goals are, what you're recommending to help them achieve those goals and why.
What then follows:
- details of how much it's going to cost them;
- the client's feelings about risk;
- where you're recommending they invest their money; and
- details about your chosen platform and why you are recommending them.
Most people just want to be able pick up the report to quickly recap on what was the brief or what did I want to achieve, what are you recommending and why I should do it.
5) Use open-ended questions as headings
We have started to use open-ended questions as our section headings, such as:
- How do you feel about risk?
- What am I recommending and why?
- How much will this cost me?
- Where am I recommending you invest this money?
- How do the costs compare to what I am paying now?
It's best to write in simple language wherever you can and as much as possible.
The world of protection, pensions and investments is complicated enough without using acronyms and industry-specific terms.
So instead of saying:
"I recommend you use the assets you currently hold within your General Investment Account to fund your 2020/21 Isa."
You might instead say:
"I recommend you use the money in your General Investment Account to fund this year's Isa."
It may be the case that your reports adopt some or all of these practices already.
But hopefully there are some nuggets in here that might prove useful if you're thinking about structuring your reports in a different way.
Ultimately, if it works for the client, the likelihood is it will work for the regulator too.