Perspective's Julie Hepworth explains why some advisers risk getting lost in a maze of Financial Services Authority (FSA) guidance at the cost of documenting important client information.
The array and range of regulatory information affecting IFA firms shows no signs of abating; indeed, we have seen an unprecedented 12 months in terms of the volume of FSA guidance consultations, finalised guidance and policy statements.
Dealing with this level of output occupies a large proportion of my time and I know how difficult it is to keep up with everything issued by the FSA.
Therefore, I have great sympathy for those who not only work at the sharp end with clients but are also responsible for ensuring the raft of communications from the FSA are embedded into their processes and procedures.
No-one is suggesting that this is anything but challenging, in particular, around the information that is required from clients and that which has to be documented by the firm. Indeed, sometimes the interpretation of the requirements of a new FSA paper translates into a range of new procedures being introduced which inevitably equates to more ‘hard facts’ being added to a client file.
It is easy to get lost in the requirements for a plethora of hard facts but of equal importance and in some instances, greater importance, is what we would call the ‘soft facts’. My concern is whether we are getting lost in the sea of hard facts at the risk of understating sufficient soft facts?
For example, COBS 9.2 sets out a wide range of information that a firm must collect with regard to the specific client aims and objectives. What the handbook does not mention is the value of establishing and documenting the client’s underlying motivation behind the objectives that have been captured.
All too often, an adviser knows and understands a client’s drivers but is it always fully documented for a third party to read and understand to the same extent that the adviser understands?
There is another, further example where losing sight of the importance of soft facts could uncover problems. The FSA’s Centralised Investment Proposition and Replacement Contract paper clearly sets out the FSA’s expectations in terms of illustrating the difference in cost between an existing and new arrangement broken down to individual product level by fund costs, wrapper/product charge, adviser remuneration and any other costs.
In the event that the new arrangement is more expensive it is vital to detail why the client is willing to accept the increased costs.
For example, what are the client’s motivators/aspirations and how are they being met by introducing additional cost? What were their views on introducing these additional costs? These soft facts are equally as important as a nicely laid out cost comparison table to ensure that the client understands the why.
As suitability reports increase in length to cover good practice, stated in those ever-expanding FSA Consultation Papers, it is important not to lose sight of a suitability report’s actual purpose – that is to be a clear statement to the client of why and how the adviser’s recommendations meet their needs.
Soft facts are absolutely invaluable in order to demonstrate this. It is important to ensure that the soft facts captured in meeting notes are précised in the suitability report; in essence the Report should ‘mirror’ the ‘know your customer’ information.
In summary, while it is important to act upon FSA guidance and implement the good practice into procedures, this should not be to the detriment of remembering the importance of painting a picture through soft facts for a third party to understand at any point in the future.
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