Assessing suitability: Research & Due Diligence (R&DD)

Agenda Why look at R&DD? Thematic Review Key takeaways and next steps What we did Key findings Areas for consideration (including good/poor practice) Key takeaways and next steps

Why look at R&DD? What is the purpose of R&DD? Understanding recommended solutions Funds/products/services Two fundamental questions Why are we interested R&DD? - A root cause of unsuitable advice - To understand firms’ approaches

What we did Pre-consultation 13 Advisory firms 3 Provider firms 7 Third party consultancies

Key findings Majority of firms demonstrated elements of good practice Often not replicated across the entire approach Importance of culture of challenge

Criteria for selecting an investment solution Prescription Various criteria used for selecting investment solutions Link to customer needs and objectives Review of criteria

Assessing risks Volatility Various factors to consider including: Risks of underlying investment Product structure & complexity Presence/Absence of protections Fact vs opinion Familiarity with product/provider/assets

Provider due diligence Provider’s ability to continue providing the service: Financial strength Commitment to the market Broad understanding of firm’s position Entrusting the firm with client money

Platform due diligence Is it appropriate to recommend a platform? Criteria for the platform Objective approach rather than ‘retro-fitting’ Does the platform: Only receive remuneration permitted by the rules? Present retail investment products without bias?

Expertise Skills, knowledge & expertise Outsourcing to a third party Competence of the third party Cannot delegate responsibility for suitability

Implementation Effective communication of R&DD results throughout the firm Alerts Training/guidance

Ongoing reviews Constant change Revisit and refresh Structure of markets Proposition offerings Your client banks Revisit and refresh Periodic reviews vs ad hoc reviews

Assessing suitability web-page Key takeaways Culture of challenge Revisit & refresh Size doesn’t matter TR16/1 Assessing suitability web-page Watch this space

South West – March 2016  Northern Ireland – April 2016 North East – May 2016  East Midlands – June 2016  Wales – July 2016  Scotland – September 2016  East Anglia – October 2016  West Midlands – November 2016 London – December 2016  Yorkshire and the Humber – January 2017  South East – February 2017  North West – March 2017  https://www.fca.org.uk/events/roadshows/fca-live-and-local

QUESTIONS?