It’s time to refine your aptitude reports

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Compliance professionals can be cautious. Sometimes this leads to specified content making documents long and unwieldy and therefore unlikely to be read by the intended recipient. Take aptitude reports.

For about five years, the Financial Conduct Authority has been pushing advisers to shorten and simplify their content. With the advent of the consumer requirement, this has become even more important, as new legislation places even greater emphasis on understanding the customer and supporting results.

So if you haven’t already, add reviewing your suitability report template to your Consumer Duty implementation plan and let’s start producing materials people actually want to read.

What does good look like?

While the FCA prescribes what should be included in a suitability report, it also outlines the amount of superfluous content advisors tend to include. For example, customer information gathered from your discovery of facts. Let’s face it, most people know how old they are and how many kids they have.

FCA is big on executive summaries. This is an opportunity for you to highlight the key points of the report

When writing a report, put yourself in the client’s shoes. Is it readable? Keep information short and concise, avoid repetition, and add additional blurb, such as vendor details and investment solutions, in appendices.

FCA is big on executive summaries. This is an opportunity for you to highlight the key points of the report. Explain clearly and simply how and why your recommendations meet your client’s needs, drop the jargon and beware of dreaded acronyms.

Consider the format of your report and how you can make it more accessible. Keep important information front and center and use headings, colors, tables, charts, and bullet points to break up text and highlight key risks and changes associated with your recommendations. No one wants to read long, rambling paragraphs, especially if they duplicate previous work, such as the research process.

Customize your report and include things the client said during your meeting to add relevance. Although a template gives you a starting point, it doesn’t need to be set in stone. We find that the religious inclusion of standard paragraphs and general statements can lead to irrelevance and repetition that will inevitably add length.

Personalize what you have to say, don’t repeat yourself and use appendices. They are your friends and those of the FCA.

Be aware of what doesn’t need to be included. For example, information about status and scope of service would be better placed in your engagement letter. Needless to dwell on the things you did not recommend (except stakeholder/professional retreats) and it is also entirely legitimate to refer the reader to the information provided in previous/other documents, or contained on your website.

As Mifid II has made it mandatory to record all advice leading to transactions (voice recordings or meeting notes), this can help prove suitability, so shorter reports are possible, as they are not your only source of evidence.

What should you include?

When reviewing your suitability report template, make sure it includes the following:

  • A clear statement of the client’s objectives and priorities
  • A brief summary of their current situation, including existing relevant investments
  • Explain the reasons for your recommendations and how they meet the needs and objectives of the client, highlighting the associated risks. Refer to the information on which your recommendations are based
  • Draw out the pros and cons of the recommended product to provide a well-rounded view and explain the implications of any “targeted” advice
  • If an existing plan is canceled and a new one put in place, prove the comparisons on a comparable basis. Clearly explain why the benefits of the change outweigh the costs involved
  • Provide a clear and concise explanation of the potential costs, fees and penalties associated with your recommendations. This could be represented as a graph or a table
  • Clearly state the implications of your recommendations for your client’s tax obligations
  • Include a “more details” section to insert specific customer information. This is necessary to cover “other customer characteristics”.

In an effort to practice what we preach, this is just a brief summary of what you should think about when trying to shorten your aptitude reports.

Most importantly, focus on the customer and the order of information you want to convey – this will help shape the format. Personalize what you have to say, don’t repeat yourself and use appendices. They are your friends and those of the FCA.

Vicky Pearce is a director at B-Compliant

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