TRUE FILE REVIEWS TAKE TIME TO COMPLETE

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11 April 2022

We’re firm believers that you get what you pay for. But do you know exactly what you are paying for? File reviews are a classic example.

Compliance consultancies have differing opinions about what constitutes a file review and it is difficult to compare like for like. Some provide a very basic check to ensure the appropriate documents are held on file, however, this doesn’t explore the wider issues that could impact suitability, such as the adequacy of the know your client information gathered. Indeed, you could have a compliant file, but unsuitable advice.

When we check a file, we ensure it not only meets all the required regulatory rules, but also that there is sufficient information to support the advice given, in the event of a complaint. This is only possible by carrying out a thorough assessment, which takes time and inevitably costs more than a basic review.

This is not something you can ignore. The regulator remains focused on suitability reviews and can request evidence demonstrating their adequacy. Recently, defined benefit file reviews were required from a number of firms.

Common adviser mistakes

A general lack of know your client (KYC) information is a something we see regularly – very little detail recorded on files, no fact find or data capture documents, or when they do exist, lots of blank boxes. Done properly, KYC should tell a story, consisting of good soft fact notes.

It’s easy to forget to update your KYC if the information was captured years ago. Sometimes additions are written onto the original document, but with no way of telling them apart from the historic data, other than, perhaps, the use of a different coloured pen!

If partner/spouse information is very basic or completely missing, you’ll be handed an immediate yellow card. How can you claim to provide holistic advice if you don’t have sufficient background about everyone involved?

Likewise, expenditure details are rarely broken down into ‘essential, lifestyle and desired,’ sometimes not all income sources are shown and there is a tendency among advisers to lump expenditure into an ‘income meets expenditure’ comment. Don’t forget, this is a key requirement when a client is going into the decumulation phase of their financial journey.

Other areas where we often find issues with files include:

  • Insufficient anti-money laundering checks carried out.
  • Client objectives can be confused with outcomes and are often far too general. For example, the objective might be to retire at 57 with an income of £xx per annum. It isn’t ‘to retire early.’
  • Failure to evidence/consider state pension entitlements. Again, this is a key requirement during the decumulation phase or a pension switch.
  • No record of whether a client is vulnerable and if they are, nothing to explain how they will be handled in accordance with the Fair Treatment of Customers requirements. There is often no clear evidence that the potential vulnerability has even been considered.

Suitability reports and overall quality

You have a duty to present information to clients in a form they understand and is genuinely useful. To that end, reports that are full of jargon and technicalities simply won’t make the grade. Ensure you use plain English, just as you would if you were speaking to the client direct. For example, does Mr Smith really understand passive investing, institutional asset class funds or tactical overlay?

Your suitability reports should also include issues such as estate planning and workplace pensions and we find these are often overlooked. The latter is particularly important when a pension switch is being advised.

Discovering contradictory evidence across various documents during a suitability review is not uncommon, along with a lack of evidence to support adviser comments and statements on wealth, health, income and expenditure.

Organisation is key. Make sure your files are clearly labelled and you haven’t stored lots of documents in one PDF, making them difficult to navigate.

More information about our approach to file reviews can be found here. If you have any questions about the process we undertake, don’t hesitate to contact us on (0161) 521 8641 or email: [email protected]

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