Asked at the Distribution Technology conference on 4 March about his views on how the Financial Ombudsman Service’s (FOS) take on suitability reports often differed from the regulator’s, Percival (pictured) responded: “Watch this space.”
Percival had told delegates at the conference he didn’t believe shorter, simpler suitability reports stood less of a chance at defending complaints with the ombudsman than those containing a raft of clauses designed to “cover the firm’s position”.
But an adviser in the audience pointed out he had evidence to prove the FOS had been interpreting FCA rules differently to the regulator and the firm, which made it difficult to scale down the reports.
“Until you get the FCA and the FOS in the same room saying the same thing on what they actually expect suitability reports to contain and give examples it’s always going to be difficult [to get them right],” he told Percival.
Percival had previously denied there are “significant” differences in what the regulator thinks is adequate due diligence undertaken by firms and how the ombudsman finds in dispute cases.
But he admitted the regulator was “conscious” of the issue and needed “to do something about that view”.
At the conference Percival reiterated the regulator’s view suitability reports needed to contain only three elements: the client’s objectives, why the advice is suitable and what could be the disadvantages.
Reports need to be shorter and more concise, he said. “They are there for the client to read and understand. And that’s not generally where they are at the moment. They are more about covering the firm’s position.
“[Firms] say they have to put all these things in for the ombudsman. I don’t buy that.
“If suitability reports are personalised and clearly demonstrate why the recommendation is suitable for that individual client and it’s communicated to the client in an effective way I don’t see why that means they don’t then stand the best chance with the ombudsman.”
He also warned advisers they needed to take the “often forgotten element” of client knowledge and experience into account when assessing suitability.
This was important for the advice and how reports were presented. For instance, inexperienced clients would not be expected by the regulator to understand reports full of jargon, he said.
In February Percival told a conference to avoid standardising suitability reports and not to pre-fill them with templated objectives. The increased standardisation of suitability reports was a concern for the regulator, he said.
Read: The reality behind the FCA’s latest theory on suitability letters
