THE GOVERNMENT and City regulator need to give clearer guidance to independent financial advisers (IFAs) on how to communicate better with clients, an IFA trade body has said.
The Association of Professional Financial Advisers (APFA) has published a guidance paper for its financial adviser members to help them understand the Financial Conduct Authority (FCA)’s views of what constitutes best practice when producing suitability reports for their clients.
The paper follows the FCA’s smarter consumer communications report, published last year, which looked at how financial services firms could relay information to consumers in a clearer way to help them make better personal finance decisions.
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“The [FCA] paper noted that currently advisers appear to be creating suitability reports which, with their lengthy disclosures and technical language, are driven more by the need for risk-mitigation against future complaints and less by the need to communicate clearly to consumers,” said APFA.
APFA’s guidance encourages IFAs to summarise the most important information at the beginning of reports and make them more consumer-friendly by removing jargon.
The IFA market is traditionally very risk-averse and sticks to tried-and-tested products. It has been rather luke-warm towards peer-to-peer lending, which P2P firms are keen to address by educating IFAs about the sector.
Some financial advisers have expressed to Peer-to-Peer Finance News that their key focus is mitigating risk rather than seeking innovation, mirroring APFA’s comments about the FCA paper.
“The FCA has often said that it is possible to produce short suitability reports which still manage to communicate all the relevant information,” said Caroline Escott, senior policy adviser at APFA. “Advisers told us they felt frustrated at the lack of specific guidance from the FCA in this area, which is why we decided to try to fill that gap with our guide.
“We still believe that there is more the government and regulator could do to encourage advisers to produce more concise suitability reports. One such step could be to prune the number of different rules and regulations covering disclosure, although we recognise that many of these requirements come from European directives and regulations.”