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The FSC stated in its notice that these advisers, though in a small minority, had also not sufficiently documented and evidenced their understanding and risk assessment of the products that they were selling. More specifically they had “not relied upon third party risk assessments and had not conducted their own assessment.”
Information gathered through client meetings and fact-finds was found to be “insufficient and failed to take into consideration all of the client’s circumstances”, such as investment objectives, age, health, assets and liabilities and debt and risk profile and appetite.
Where significant concerns were identified in relation to financial advice advisers were required to engage external independent compliance resources to review client files and to ensure that issues identified were resolved in conjunction with any affected clients.
John Aspden, chief executive of the FSC, said: “Ultimately the consumer must take responsibility for the product which he or she selects. However it is equally important that anyone providing advice looks at all aspects of what is suitable for the consumer, and we want to make sure that the interests of consumers are kept paramount”.
He added that “most advisers are very professional, providing sound and objective advice. However it is important that these standards should apply universally, and where necessary the Commission will take action to enforce this."
Other key findings from onsite visits by the commission were:
Suitability of advice
- Some occasions where financial advice had not met the standards expected of advisers included client files that did not always demonstrate that investors had been provided in a timely manner with an appropriate comparison of products.
- There was also not always a clear in-house analysis undertaken or documented as to why a particular product is deemed to be appropriate at the relevant time and why alternative products have been discounted.
Disclosure of information/’Reason Why’ letter
- In some cases, the commission found that the ‘reason why’ letter was issued after the sale was concluded. Furthermore, some of the letters reviewed were not sufficiently tailored to the client’s specific circumstances and did not adequately explain why the product selected was chosen over other products.
Structured products
- It is important that advisers ensure that descriptions of the structured products are sufficiently clear for their clients to understand: this may be challenging where the basis for return is complex. Additionally, there are particular risks associated with these products, (including market risk, inflation risk and counterparty risk), that should be disclosed to clients.
