What the FCA expects on ongoing advice
Many firms now receive the lion’s share of their income from the ongoing relationship they have with their clients.
31 Jul 2019
As a result, making sure the ongoing advice proposition meets both the requirements under Mifid II and the needs of their clients is vital.
With that in mind, we thought it'd be worth looking at how the FCA may review the robustness of an advice firm's ongoing advice proposition (outside of simply meeting Mifid II requirements), and how you can make sure your firm is delivering the service that has been promised to clients.
We believe the FCA will want to see you disclosing the ongoing proposition and what it involves on the following basis:
Costs and charges to be given in pounds and pence as well as percentage terms (if applicable)
The service to be explained clearly, fairly and accurately, and avoiding the use of vague terms such as 'a review' without explaining what this entails
That the fee may rise as the portfolio rises
How and when charges are payable
How the client may cancel the ongoing arrangement, in terms that are clear and fair.
The FCA will be looking for an explicit and clear agreement to be in place to evidence the arrangements between the firm and the client.
Are all staff involved in providing the ongoing service competent in their role, and knowledgeable enough to provide the service in full?
Do staff understand what the process is when a client refuses a part or all of the service?
Is there a procedure to deal with client who may refuse to engage in the process?
Can the firm evidence it has sufficient resources in place to fully service all clients? For example, the FCA is likely to question and challenge firms if, say, 3,000 annual assessments of suitability are required in a year and they all fall in the same month or with the same adviser.
Is there a process in place to ensure all clients are contacted in a timely manner and the reviews are completed in line with what has been promised to them?
Does the firm have a back-up plan for when key staff may be absent?
Does the firm regularly review the management information (MI) from the ongoing advice proposition to monitor how many clients have/ have not received the service in full?
Does the firm regularly monitor the take-up/ drop-off rate from each proposition, to predict any peaks or troughs in income to the firm?
Does the firm have any client feedback from those who have received the ongoing service, where any trends or issues may be uncovered?
Income generated from the ongoing relationship with clients is key in making sure your business remains profitable and with a steady, growing cashflow.
But that said, simply meeting the minimum requirements under Mifid II won't be enough to evidence to the FCA that your firm is treating its customers fairly, and taking the reasonable steps required to meet client expectations.
A further key risk firms are really starting to look at is the ageing population of their client bank.
Having invested so much in building up the business, it would be a great shame if on the client’s death, the adviser is ‘sacked’ and another one appointed by the beneficiaries.
Many firms now spend much more time with their clients and other family members who are to inherit in future, making sure all parties know the value the adviser is bringing to the relationship.
This also helps to ensure continuity of the service following the death of a client.
We believe firms should carry out a rigorous audit of their ongoing advice service and the processes that go with it.
There's been a lot attention on meeting the requirements under Mifid II, but there's so much more to consider when thinking about how the FCA may review your firm's processes and procedures.