The search for the perfect suitability report seems to be one of those never ending, iterative quests. We decided to redesign ours after we all agreed it had become an overly long, clunky and not particularly user friendly document.
We already undertake regular document reviews to reflect changing regulatory advice and our own standards, as well as feedback from clients, advisers, and our professional indemnity insurer. This exercise seemed overdue.
Given that suitability reports always seem to be high up the regulatory agenda, this was a priority to do and to do well.
As a team and working with our outsourced paraplanning support and our clients, we started by identifying what the perceived issues were. The main problems we identified were that our suitability reports were too long, potentially too complex and massively wordy.
These kind of issues with suitability reports have been picked up often by both the Financial Conduct Authority (FCA) and regulatory commentators. As a profession we need to restructure our reports, to work with clients more and also to stand up to compliance teams to make reports more interesting, accessible and engaging.
We decided the client had to be the primary focus of the report. While our suitability reports obviously have to be compliant, we also had to ensure they were fit for purpose and defendable should the unfortunate ever happen. Therefore the primary audience was the client, the secondary audience was the regulator and the tertiary audience was related parties such as the Financial Ombudsman Service, our professional indemnity insurer and, should it ever come to it, our solicitors.
After forming a project working party, these are the steps we took as part of a complete overhaul process:Revisiting our fact-finding skills
We continue to believe this is the best starting point for suitability. The better we know our clients, the better our advice and suitability will be. We paid particular attention to objective, goals and affordability to inform the process of research, recommendation and suitability.Strengthening our data harvest on existing plans
This is a major part of the fact-finding process but is often done as a separate exercise after letters of authority are signed. It is important for us this is done well to inform the advice process.Searching and replacing jargon
The financial services industry has its own, often impenetrable lexicon which is just as confusing to many clients.
As a subset of jargon, we try very much to put simple language into our report, for example, income through retirement rather than decumulation or drawdown, saving or investing rather than accumulation.Removing anything that looks like a templated section from overuse
As busy advisers who produce reports in collaboration with paraplanners, this is an easy trap to fall into. But templates are a fertile breeding ground for stock solutions so while we have always worked hard at avoiding this anyway, we revisited this as part of the process.Working hard on our approach to attitude to risk
This is a huge subject and is clearly a pivotal part of any suitability process. We have a specific risk brochure and we ended up strengthening the discussion around these key elements within the fact-finding process to ensure we were absolutely happy with how it fed into the suitability report.Revisiting charts and graphs
We asked ourselves whether charts and graphs produced as part of the report were fair, accurate and not misleading. Did they have the correct benchmarks attached? Were they consistent across all reports and not just being used to demonstrate the positives?Replacement business
We spent a long time on this. We mapped how we would record, analyse and recommend the stated objectives, performance, charges, as well as tax, risk, rationale and client circumstances. We were keen to ensure we were treating the client fairly during this process and not just pushing our own agenda. We all felt strongly this is key area that will continue to attract a consistent level of regulatory scrutiny, so the process had to be robust.Testing our advice on each other
We thought hard about the sort of clients and enquiries we attract. Once we built the suitability report, we asked a pretty simple question: Would we actually take our own advice based on scenarios we built?Trying to shorten the overall report
We worked very hard on this but despite it being what the FCA may be pushing for, we found it quite hard to do. We ended up achieving this in part but dismissed working to a target page count or report. As other advisers will be aware, clients are all different with different circumstances. Any attempt at limiting the number of pages appeared to have the potential to hinder personalised advice.Revising the report layout
We broadly went for a three-part report. We went for a shorter, sharper first part which covered client objectives, needs, goals and demands. It then went on to explain why the recommendations were suitable based on the information provided and which, importantly, also explained any potential disadvantages for the client to consider.
This was designed as an executive summary or advice 'headlines' where the client could quickly get into their hows and whys, could read our whys and hows and then quickly assess any potential disadvantages, if any, within the advice.
Also, in relation to reports dealing with income withdrawals we referred to FCA handbook rules which meant we revisited how we reported:
- The potential for capital value of the fund being eroded
- That the investment returns may be less than those shown in the illustrations
- Annuity or scheme pension rates may be at a worse level in the future
- That the levels of income provided may not be sustainable; and
- That there may be tax implications to consider within any adopted advice.
The objective here was absolutely not to strip out, minimise or diminish in any way the importance of regulatory and investment risk warnings, but to move them out of the way within the first part of the report so that clients could quickly get to the high level information which would most engage them.
We strongly signposted all important information throughout the document and worked hard on encouraging clients to read the entire document.
This was then followed up with a more detailed second part which expanded on the research, analysis and recommendations along with any expansion needed of risks, disadvantages and other important areas to consider.
In the last section or appendices we put all of the important, previously signposted, information which we felt needed to be in the report for all of the audiences previously mentioned.Introducing more graphics, data visualisation and colour
We all agreed page after page of unbroken text was a huge barrier to client engagement. Even with simplifying language and removing any jargon, these lengthy reports can still be extremely daunting. This element is still a work in progress. We hope to improve on some of the infographic and data visualisation elements, but feel we have made a good start.Seeking regular feedback from select clients
These reports are for clients after all. We constantly referred to our client user group and sought feedback on each iteration. They were invaluable in assisting us in this ongoing process.
Overall, the process turned out to be harder and took much longer than we thought. While it didn’t shorten the reports by much, the exercise did modernise and simplify them, and the feedback from clients has been very favourable.
We continue to work on our suitability reports, and in all likelihood probably always will. But we feel much happier knowing that our clients find them easier to read, and ultimately to understand.