On 24 February, the Financial Conduct Authority (FCA) published the findings from its review of ongoing advice services provided by 22 of the largest financial advice firms, with a focus on the effectiveness of suitability reviews. The FCA noted that:
“All firms should read our findings and take the necessary action to make sure consumers are getting the service they are paying for.”
The review forms part of the FCA’s focus on helping the UK financial advice market develop for the benefit of consumers in order to ensure a trusted and thriving financial advice sector.
Based on its review, the FCA does not consider that there is a systemic issue with respect to ongoing advice services, but it expects financial advisers to review its findings and consider whether:
(i) they can clearly evidence that they have delivered all the services they are required to deliver (whether pursuant to their contractual obligations or regulatory requirements), and
(ii) a remedy may be required where concerns are identified, e.g. whether it would be appropriate to proactively engage with customers to assess if any harm was caused as a result of any identified problems or failings.
We have set out below examples of good and poor practices identified by the FCA in the delivery of suitability reviews. The FCA also summarised some of the existing rules and guidance on adviser charging in the annex to its findings, which may further assist firms with their reviews.
Summary of FCA findings
Based on the data provided, the FCA found that:
- suitability reviews were delivered in around 83% of cases where required;
- the client either declined or did not respond to the firm’s offer of a review in 15% of cases; and
- the firm did not attempt to conduct a review in fewer than 2% of cases.
Where the client either declined the review or did not engage with the firm’s request for information to conduct a review, the FCA has indicated that redress is less likely to be required. The FCA acknowledges that there may be circumstances where firms have made “reasonable and proportionate attempts” but have not received the necessary engagement from their client to conduct the review. In these situations, and in circumstances where the client has declined the ongoing services for a few years, the FCA expects firms to consider whether an ongoing service is in the client’s best interest, which may require conversations to be had with impacted clients.
However, the FCA’s primary concern related to the fewer than 2% of cases where the firm had not attempted to conduct a review, in which case the FCA considered redress will likely be due. The FCA has noted that it will continue to monitor the situation.
It should also be noted that the population reviewed was not considered by the FCA to be a representative sample and firms will need to make their own individual assessments based on their internal records and practices.
Examples of good and poor practices
The FCA sets out examples of good and poor practices it found through its review; the good practices being examples that would assist firms who are looking to improve their practices with regards to ongoing advice services.
Examples of good practice include:
- Clear terms setting out the nature and timing of the ongoing service in client agreements and consumer communications.
- Effective systems and resources to ensure suitability reviews are scheduled and offered as agreed.
- Policies to stop collecting fees where a client has not engaged with the service for a period of time.
- Record-keeping enabling firms to evidence delivery of their services.
- Where suitability reviews are provided:
- up-to-date records of client circumstances, objectives, attitude to risk and capacity for loss.
- review and record-keeping of risk profiles, charges and performance of investments to ensure they remain suitable or to identify if alternative recommendations are required.
- communications to clients regarding the outcome of a review being recorded as a personal recommendation.
Examples of poor practices to avoid include:
- Unclear description of services in client contracts that do not enable customers to understand what will be delivered throughout the relationship.
- Ineffective processes, controls and monitoring to make sure services are delivered as agreed and that advice meets regulatory requirements.
- Insufficient management information to allow adequate senior management oversight.
- Inadequate record-keeping to evidence delivery of services.
What should affected firms do next?
Bearing in mind the examples of good and poor practices, the FCA calls on firms to reflect on its findings and consider whether they can evidence that they have delivered all the services they are required to deliver pursuant to their contractual obligations or as required by the FCA’s rules.
The FCA has suggested that firms carrying out proactive reviews should look back to 2018 (when many of the requirements relating to annual suitability reviews came into force) and handle customer complaints about ongoing services in line with their obligations or rules set out in the Consumer Duty and Dispute Resolution: Complaints Sourcebook (DISP). More broadly, firms should also consider their overarching obligations to act in their client’s best interests and in accordance with their obligations under the Consumer Duty when determining whether consumers are getting the advice service they are paying for.
Where problems or failings are identified, firms are advised to consider whether it would be appropriate for them to proactively contact customers to assess if any harm was caused as a result of these issues and take appropriate action, including through the provision of appropriate redress or remediation, where clients may have been disadvantaged.
Next steps for the FCA
The FCA will continue to monitor complaint numbers and intends to further assess later in 2025 how firms have responded to its findings and review actions that they have taken. This will include an assessment of whether appropriate remedies are being applied.
The FCA also plans to review the existing rules relating to financial advisers' ongoing services to ensure they remain relevant in light of market developments. Further engagement with the sector on this issue is expected later this year.
Additionally, the FCA’s ongoing work in connection with the Advice Guidance Boundary Review includes proposals to help increase consumer support with financial decisions, including plans to consult on rules for better support for consumers in retail investments and pensions in the first half of 2025.
