FCA announces positive findings in its assessment of ongoing suitability reviews

The Financial Conduct Authority (FCA) has this week revealed some good news – with research showing that advisers are conducting ongoing suitability reviews in the vast majority of cases. The analysis, which considered data from 22 of the largest financial advice firms, revealed that suitability reviews were conducted in approximately 83% of instances. In an additional 15% of cases, clients either declined or did not respond to the offer of a review, leaving fewer than 2% of cases where firms made no effort at all to provide the promised service.

Whilst it is a generally positive trend, the improvement is not altogether surprising. Changes were expected following the FCA’s Assessing Suitability Review in 2019 – when it was found that whilst most firms were meeting their obligations, they were often not documenting them or providing updates to the client.

Impact for advisers and their insurers

The FCA’s findings serve as a reminder to adhere to regulatory requirements and contractual commitments, as well as a warning not to be complacent. All advice firms have been asked to evaluate their practices in light of the review and to implement necessary measures to address any deficiencies – not just those where problems were noted. This proactive approach is essential not only for regulatory compliance but also for maintaining client trust and avoiding potential reputational damage. The FCA are keen to ensure that in those 15% of cases where clients decline or do not respond to the offer of a review, advisers are challenging that approach. The FCA stated:

“Where a firm has been ready, willing and able to provide suitability reviews, but a client has consciously declined the service in any given year, we consider it less likely that redress will need to be paid. Where the client has declined the service over a number of years, firms should discuss with the client whether continuing with the service is still in their best interest.”

Advisers should ensure they are sufficiently challenging declines to conduct an ongoing suitability review. Simply using the client’s refusal as a justification is likely to lead to criticism and potential redress being ordered.

Looking ahead, the FCA plans to reassess the regulatory framework governing ongoing advice services later this year, as part of its ongoing review. Recognising that consumer needs, technological advancements, and market practices have evolved over the past decade, the regulator aims to ensure that its rules remain relevant and effective. This initiative aligns with the broader Advice Guidance Boundary Review, which seeks to enhance the accessibility and quality of financial advice.

Comment

Whilst the FCA’s review paints a very positive picture of the financial advice industry’s commitment to delivering ongoing suitability reviews, it also underscores areas requiring improvement and the risks to advisers for failing to comply with their obligations. Equally, whilst it is clear that progress has been made, it might not be indicative of the wider position, given a relatively small sample of firms were reviewed. It remains to be seen whether the positive results reflect the wider market – particularly at those smaller firms which do not have the same level of resource as the 22 firms reviewed.