FSA publishes warning and guidance on Assessing Suitability

Thursday 13 January 2011 3:47 PM

The FSA have published a 'guidance consultation' on Assessing suitability:
Establishing the risk a customer is willing and able to take and making a suitable investment selection.

The report is important reading for firms providing investment advice or discretionary management services to retail customers, as well as providers of risk-profiling and asset-allocation tools, including those provided as part of a platform.

According to the paper: "Of the investment files assessed as unsuitable between March 2008 and September 2010, we rated half of these as unsuitable on the grounds that the investment selection failed to meet the risk a customer is willing and able to take . . .The level of failure in this area is unacceptable."

The regulator goes on to warn: "As we apply our intrusive and intensive supervisory approach, we will be looking to see how firms have acted on this report. We will consider, for example, whether firms have robust procedures, tools and risk category descriptions (where used) to establish and check the level of risk a customer is willing and able to take, as well as assessing the suitability of investment selections.

We expect to see improvements in the standards of advice and private client discretionary management, and will continue to take tough action where we identify poor practice."

You can download the report here. At 25 pages, it is relatively concise for a regulatory document and contains clear statements about what is expected and where firms are going wrong, as well as useful examples of good and poor practice.

At CTP we have considerable experience of helping private client investment firms develop effective approaches to assessing and ensuring suitability of advice. If you would like to discuss your firm's response to the FSA guidance with an expert in this area, please call 020 3170 5779 or email enquiries @ctp.uk.com.

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