• Risk profiling – the use of “profiling technology” is not required, however it can be useful. The output from such risk tools is only a guide and should be challenged with wider discussion.
• Risk description – what does it mean to the client?
• Other factors – consideration for term, capacity for loss/other assets, standard of living.
• Asset allocation – how has this been established for portfolio or range of risk specific portfolios?
Demonstrating individual client advice when recommending a CIP remains a key indicator when the regulator assesses suitability. Therefore, there is a need for a structured and documented research process to consider a range of client solutions, a risk assessment process to ensure each and every client is invested according to their agreed level of risk and a suitability report that provides clear reasoning as to why the recommended CIP will meet the needs identified.
Tony Catt is an independent compliance consultant
Expert view: FCA Thematic Reviews
Tony Catt, compliance consultant, provides an outlook for future FCA reviews:
“The FCA is going to be focusing on due diligence and research in 2015. This may well involve thematic reviews. The main issue is the collection and maintenance of evidence of due diligence and research that is undertaken to ensure a good outcome for clients.
“Firms will need to be able to provide evidence of the processes that have been used in their research and due diligence. Robust processes should give a better chance of consistent quality of advice and good outcomes for clients.
“The FCA will expect to see a definitive, repeatable process in place. The firm should use the contact with the regulator as a positive opportunity to confirm that the due diligence and research it undertakes for all business is sufficient and relevant to each client.”
