In the ever-changing world of financial planning, suitability reports are essential for making sure that your clients get the advice that’s just right for them. To get a clearer picture of what goes into these reports and the challenges faced by practitioners, we had a chat with three experts to take a deep dive into the how and why, reports Jenny Hunter, Senior Financial Journalist at IFA Magazine.
So, it’s a big shout out to Caroline Stuart, a Chartered Member of CISI and CISI Accredited Paraplanner from Sparrow Paraplanning, Melony Holman, Managing Director of Compliance & Training Solutions (CATS) and Damian Davies, Managing Director of The Timebank, for their help and for sharing their insights with us
In this, the first of our three-part series of articles where we’re looking into suitability reports, we delve into what actually needs to be included in those suitability reports you’re so familiar with.
The essential elements
To kick things off, we asked Caroline Stuart about the compliance requirements for suitability reports. She broke it down simply: “According to COBS, there are only three things that need to be in a suitability report. First, you have to specify the client’s demands and needs based on the information you’ve got from them. Second, you need to explain why the recommended transaction is suitable for the client. And third, you have to highlight any possible disadvantages.”
But that’s not all. Caroline points out that while these are the minimum requirements, the real aim is to give clients all the information they need to make an informed decision. “Everything used to formulate the advice, like research and client background information, needs to be in the file, but not necessarily in the report. The file supports the report and the advice, not the other way around.”
Melony Holman adds more detail by citing specific clauses from COBS 9.4.1R saying: “A firm must provide a suitability report to a retail client if they make a personal recommendation for various transactions. This includes acquiring or selling holdings in regulated collective investment schemes or making changes to a personal pension scheme.”
Damian Davies also added his thoughts, emphasising the importance of understanding key documents like COBS 9.4 and the FSA guidance paper FG12/16. He said: ” There is a fourth area required in a suitability report, which is to provide the client with appropriate details about the complexity of the transaction. This is quite a loose description and can encourage people to overcomplicate their reports.”
Damian’s advice to planners and paraplanners is really to keep things clear and focus on the client’s objectives. Putting it succinctly he said: “If you centre the suitability report around what the client wants to achieve, you really can’t go wrong.”
Consumer Duty impact
Next, we turned our attention to Consumer Duty and whether it has changed the landscape of suitability reports. Caroline Stuart says that while Consumer Duty hasn’t altered the core requirements, it has put a spotlight on the need for clear and transparent communication as she explains: “The ‘Consumer Understanding’ outcome means we have to make sure we’re communicating in a way that clients will fully understand, considering any vulnerabilities they might have. But honestly, we’ve always had the responsibility to provide clear, transparent advice.”
Melony Holman agrees, noting that the Consumer Duty has made firms more mindful about engaging client as she reiterates: “It hasn’t changed what needs to be told to the client, just that firms should ensure their reports are engaging and that the client understands what’s being recommended.”
Challenges to overcome
Creating a suitability report that ticks all the boxes and genuinely helps the client can be challenging. Caroline Stuart mentions that one of the biggest hurdles is gathering all the information needed to create a personalised and tailored report. “The report is really the end of the initial advice process,” she says. “If you’ve got all the information needed to formulate high-quality advice and recommendations, you should have everything you need to write a high-quality report.”
She also points out the importance of making reports understandable for clients saying “We’ve all studied and taken exams, so the language and terminology we use is second nature to us. But it won’t necessarily be for the client! We need to assume intelligence, not knowledge, and write clearly and simply. This is often easier said than done.”
Damian Davies highlights that each firm faces unique challenges and underlines the need to keep everything under review saying: “Every firm has its own way of doing things, but it’s crucial to regularly challenge and reassess these methods. Just because something has always been done a certain way doesn’t mean there isn’t a better method out there.”
Collaboration is key
Effective communication and teamwork are vital in creating the best suitability reports and delivering top-notch client service. Caroline Stuart went on to emphasise the importance of collaboration among planners, paraplanners, and administrators saying: “If a paraplanner isn’t at the client meeting, the fact find, and file notes need to make them feel as if they were. It’s a collaboration: the planner’s job is to get the information as the owner of the client relationship, the administrator to collate and organise it, and the paraplanner to analyse, assess, and then relay it to the client in the report.”
She adds that good communication and collaboration lead to a better overall planning and advice journey and experience for the client saying: “While there’s a huge focus on reports, they’re just a small part of the client’s financial planning journey. The real value to the client is the peace of mind they get from the planning and advice, as well as the support and occasional ‘handholding’ from the overall relationship, rather than from the report itself.”
Damian Davies underscores the pivotal role of paraplanners in advice firms but also the time pressures they often face as he comments: “Paraplanners are at the heart of every business they work in. They touch on compliance, administration, operations, and advice. If anyone can give a view on the best ways to work as a team and get the best outcomes for clients, it’s a paraplanner. However, they often face immense pressure to get things done and may not always have the chance to step back and evaluate their processes.”
Wrapping Up
Suitability reports are more than just a compliance necessity; they’re a vital tool for ensuring clients receive clear, personalised advice. By focusing on effective communication, understanding client needs, and fostering collaboration within the team, financial advisers and paraplanners can enhance the quality of their reports and the overall client experience.
As our experts highlighted, the key is not just meeting the basic regulatory requirements but going above and beyond to make sure clients understand the advice they’re receiving and feel confident in the decisions they make. Whether it’s navigating the specifics of Consumer Duty, overcoming the challenges of creating detailed reports, or working together more effectively, the ultimate goal remains the same: providing the best possible service to clients.
Next month, in part two of our series looking at suitability reports, we’ll be getting to the details with practical tips you can use to help make your reports even more client-friendly than they are today.
