Suitability Requirements – Succinctly Explained

Back in the day it used to be called best advice, but everyone kept debating what was best, how can you prove it? After all, I’ve got the best SmartPhone in my household. The FCA have tightened this up considerably, now calls it suitability advice and ensures the proof is in the pudding. The pudding is the Suitability Report that clients receive after guidance has been given.ll advisers, whether independent or restricted, be they in the mortgage market or investments, make a suitable advice proposal and prove it.

They do this by comprehensive factfinding with the client. Establishing their needs, wants, desires and assessing their personal and financial circumstances. Currently, factfinding is migrating to the cloud using technology and the clients’ “big data”. Connecting the adviser’s factfind software to the client’s bank account, credit file, provider data, government census data, voter’s role and one day…their social media – enables an almost instant completion of the factfind.

You still can’t beat a one to one conversation with the client spread over an hour or so, gathering this information. The value of soft details is immeasurable. The challenge is that modern generations tied to their smartphones don’t have the patience for this and providers are acquiescing.

If I want to buy a car, the dealer needs to know the budget I have, the mileage I’ll drive, who else will be in the car, the purpose of driving, my feeling around colour and comfort, my thoughts on emissions and fuel. Am I electric?

In precisely the same way, advisers need to establish all the criteria to make a suitable advice proposal.


Risk is the number one concern; after all, the FCA’s main reason to be is to protect consumers and to ensure advisers assess their risk profile, enables the right product to be selected. Risk attitude is the first concern. What is their general feeling towards the risk involved in the product? Tolerance to losing their money is another question. Are they willing to lose the value of their investment for a potential higher gain? My SIPP is invested in an adventurous fund participating overseas in foreign markets. One quarter it loses £4,000, the next quarter it gains £10,000. It’s quite exciting to watch. However, if this same concept were attached to my mortgage, I might get a heart attack if I lost money.

Suitability Reports

The pudding is the Suitability Report, used to be called a letter, but they have metamorphosed into lengthy affairs. They must, however, be clear, fair and not misleading – a principle embedded in everything the FCA believes. The client must understand them when reading.

They must show why they have selected the product, why the adviser has discounted alternatives, the reasons, the benefits, the features, any risks attached or contractual restrictions.

They must be issued after advice but before the contract starts.

Mortgage advice doesn’t need one, but many lenders do them. All the other products you’ve studied in CeMAP are covered – life assurance, pensions, unit trusts, investment trusts, OEICs and pension transfers.

All this ensures the advice is suitable for the client. Moreover, I still think I’ve got the best Smartphone in the house, but I can’t prove it.

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