Investment suitability has taken center stage when it comes to regulating the provision of investment advice in the wealth management industry in the UK. The resulting requirements from the UK Financial Conduct Authority, or FCA, are stringent, complex and often uncertain—a picture that becomes clear when you take a closer at the stats.
Since 2011, the FCA has handed out £47 million in fines related to inadequate suitability controls and processes. In recent years, the organization has issued a series of warnings to the industry, highlighting unresolved flaws and recommending substantial improvements in how wealth managers address suitability requirements. The industry is falling short—but why? And what needs to change?
How wealth managers can step up
To meet their regulatory requirements, wealth managers must be able to demonstrate that they fully understand the client’s financial goals and constraints, have provided appropriate investment advice and services, and are conducting ongoing reviews to ensure the continued suitability of services over time.
Meeting those obligations requires firms to address three key challenges related to their processes and policies, their technology and their people:
- Ensure processes are robust and defensible. By establishing documented processes that cover the client journey end to end—from initial contact and know-your-client (KYC) data gathering through to investment and ongoing management—you can demonstrate that clients are treated fairly and consistently.
- Implement technology solutions that support the suitability process. At a minimum, your firm’s systems should be able to facilitate regular updates to client information, make it possible to document suitability reports and provide an audit trail for evaluating historic suitability. More sophisticated systems may serve as a one-stop customer relationship management (CRM) tool.
- Instill lasting cultural change. A comprehensive training program and corresponding quality control mechanisms are necessary to ensure that your advisors, investment and portfolio managers, financial planners and their support teams understand and are meeting their regulatory requirements.
Where wealth managers can find wins
While suitability requirements pose challenges for wealth managers, they also provide opportunities to strengthen operations and improve the bottom line. Specifically, you can:
- Improve how you do business. Robust suitability procedures and controls could lead to greater transparency across the organization, which can enhance your firm’s reputation as a trusted advisor.
- Increase revenue. Processes that encourage wealth managers to understand their clients could lead to better client service, which in turn can improve client retention, wallet share and even market share.
- Reduce operational costs. Rethinking how you approach suitability offers a chance to streamline procedures, eliminate or digitize manual processes, and reassign resources to other priority areas.
- Strengthen risk and compliance functions. Improved monitoring capabilities are a natural consequence of any sound suitability initiative and an excellent foundation for facilitating your firm’s compliance with other regulatory requirements, including MiFID II.
Is it time to rethink how your firm approaches suitability? We can help. Accenture has a deep understanding of the industry’s regulatory requirements in the UK and extensive experience conducting suitability reviews, developing training programs and establishing quality control mechanisms. If you’re interested in talking about next steps, you can reach me directly at email@example.com.
Special thanks to James O’Connor for contributing to the blog.