This finding, from the FCA’s thematic review ‘Assessing suitability: Research and due diligence of products and services’, was based on visits to 13 advisory firms of different sizes offering a variety of propositions.
The FCA said many firms did not show consistently good practice across all products and services and that there was room for further improvement.
Linda Woodall, director of life insurance and financial advice at the FCA, said:“Research and due diligence is one of the three pillars of getting advice right, which is why we have returned to this issue. Firms clearly want to get this right and all firms, regardless of size or type, can carry out good research and due diligence.”
But she said there were still improvements firms needed to make and she encouraged all firms to look at the findings and ensure that they were challenging themselves enough to deliver quality due diligence for their clients.
The review looked at the capability of advisers to research and apply due diligence to assess the nature of the recommended investments, any risks and benefits involved and whether the product provider was appropriate for the client’s assets.
The right approach
It found that firms of all sizes and type were able to do this if they had the right approach and were putting the interests of their clients at the heart of their business. Without undertaking proper due diligence, firms would find it difficult to judge whether solutions are suitable for their clients, the FCA said.
Another key finding was that firms with the right research and due diligence approach had a good culture of challenge within the business.
Staff needed to feel able to question the firm’s approach and there should be processes in place to allow for this, it said.
In firms where this culture was weak there could be a bias towards the status quo, with firms not questioning why they continued to recommend certain products and services.
Conflicts of interest with clients also cropped up in the review, for example, in some cases where the service that firms received from a platform was considered more important than the service received by the client.
The FCA was disappointed that some firms were no longer reviewing platform options available for clients because the firms were content with the service they received from their existing platform provider.
