Share
The Financial Conduct Authority (FCA) has launched the Investment Advice Assessment Tool (IAAT) to standardise how firms, and those acting on their behalf, assess the suitability and disclosure quality of investment advice. While the tool is technically guidance, it is now arguably the de facto benchmark for regulatory assessments of past advice, complaint handling, and redress reviews.
Purpose
First issued on 11 June 2025, the IAAT builds on similar frameworks used in Defined Benefit (DB) transfers and retirement income reviews such as the DBAAT and RIAAT. It is targeted at personal investment advice provided since 3 January 2018, excluding advice on retirement income or DB pensions.
The IAAT provides a structured, excel-based framework that enables users to:
- Evaluate the completeness of client fact-finds
- Assess the suitability of investment recommendations
- Determine whether key risks and costs were disclosed appropriately
- Identify cases where redress may be required due to deficiencies in advice or documentation.
Rather than functioning as a box-ticking exercise, the tool requires assessors to assign a compliance rating (e.g., compliant, non-compliant, incomplete) and, crucially, to provide narrative justifications based on the underlying client file.
Legal and regulatory impact
While the IAAT is not legally binding, it is likely to be heavily relied upon by the FCA, the Financial Ombudsman Service (FOS), and Skilled Persons appointed under s.166 FSMA when assessing whether firms have met regulatory expectations. Firms that fail to apply the IAAT or adopt a comparable standard may struggle to justify advice outcomes in the event of a complaint or FCA inquiry.
The FCA’s accompanying guidance expressly caveats that the IAAT does not make an automatic determination on the suitability of advice. It is intended to support, not replace, a firm’s investigations. Nonetheless complainants, particularly claims management companies, may still treat it as a ‘smoking gun’.
The FCA has also made clear that material omissions, such as missing risk assessments or investment objectives, will result in the advice being treated or labelled unsuitable, regardless of whether the underlying recommendation was substantively appropriate. Consequently, historic files with documentation gaps may now trigger compensatory payments, particularly in the context of FOS complaints or voluntary remediation exercises.
Firms must also assess whether client disclosures were accurate and transparent, not merely whether they were technically issued. The tool reflects the FCA’s broader Consumer Duty expectations: advice must not just be compliant, but demonstrably fair and properly understood.
Qualifications and use
Although the IAAT can be used internally without formal accreditation, the FCA expects assessors to hold a Level 4 investment advice qualification and have relevant industry experience. This will affect:
- Firms outsourcing complaints or remediation work
- PI insurers reviewing legacy exposures and
- The management of complex or borderline cases.
For regulated firms, the message is clear: use qualified reviewers or be prepared to defend your methodology in detail.
What Firms should do now
- Download and apply the IAAT: Firms should begin using the IAAT for any post-2018 investment advice under review, particularly in the context of complaints handling, skilled person reviews, or voluntary redress exercises.
- Audit historic documentation: Firms should verify that advice files contain complete fact-find records and supporting documentation. Inadequate records will now weigh heavily against firms in regulatory or redress contexts.
- Align with the Consumer Duty: The IAAT reflects broader Consumer Duty expectations, particularly around customer understanding and fair outcomes. Firms can no longer rely on disclosure tick-boxes alone, advice must be demonstrably suitable and well-explained.
- Anticipate wider regulatory use: The IAAT is no longer confined to firms under investigation, arguably it has become part of the FCA’s standard supervisory toolkit. Firms should expect it to be used in proactive supervision, enforcement, and skilled person reviews.
Comment: A strategic pivot in FCA oversight
The introduction of IAAT marks a strategic shift by the FCA from principles-based supervision to operationalised review frameworks. While voluntary in name, its adoption is now expected practice. In short: if you’re not using IAAT, be ready to explain why.
Firms should view this not merely as a compliance exercise, but as a key component of legal and regulator risk management, ensuring that both advice processes and legacy file reviews can withstand the scrutiny that IAAT now brings.
Related content:
Insurance and reinsurance
United Kingdom