Pet hates of a file reviewer – part three

The top pet hates of a client file reviewer

October 2020

Steve Bailey

Director, ATEB Consulting

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PART OF 40 MINS STRUCTURED CPD

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Risk Disclaimer

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

It has been produced for information only. Views and opinions should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned. No action must be taken or refrained from being taken based on this content alone.

Key takeaways:

  • Understand the importance of maintaining up-to-date client KYC information, identifying client objectives and not confusing them with product features
  • Understand the importance of ensuring standard template wordings are kept accurate and up-to-date
  • Gain an insight into why it is important to ensure suitability reports reflect the client objectives, identify where existing products are suitable or where a client’s objectives are unrealistic

This article is the third instalment in the ‘pet hates’ franchise.


Groundhog day …
ATEB’s file reviews are very thorough so it is very frustrating when advisers don’t appear to learn from our feedback. There is no point in fixing the file in question if the same errors or issues are simply repeated on the next case.

Know your client (KYC) updates …
Many firms do not appear to have a defined consistent process for updating KYC at annual reviews. It can be virtually impossible to identify what is original information and what has been updated.

So what?
We dream of files where there is a good level of soft information. Soft facts give meaning and context to hard facts. There is a Yorkshire saying that ‘apple pie without cheese* is like a kiss without a squeeze’. The same sentiment applies to hard facts without accompanying soft facts.

However, ALL facts, whether hard or soft, need to be relevant! Knowing that the client has a dog and enjoys walking in the hills is all well and good but irrelevant. 

We reviewed a case recently where there was much information about the fact that the client made pies. We learned what pies he makes and what the new line of pies was that was being introduced. The only outcome of that information was that the reviewer went for an early lunch.

* Wensleydale is the recommended variety.

KYC mysteries …
Fact finds often contain information that is inconsistent with other information, for example the client’s responses to risk questions. And sometimes information just appears out of nowhere, i.e. the suitability report states things that are nowhere to be found in any of the KYC. That is not a hanging offence (we had a vote to decide) but we do consider that information that appears in the report, but which is not supported by evidence of discussions elsewhere is, at the very least, less credible as a result.

A switch in time …
Replacement business, usually pension switches, feature large in file reviews. Unfortunately there is often inadequate rationale for the switch, an absence of the required costs and features comparison or a comparison done ignoring adviser charges. There are around nine common reasons advisers give for recommending a switch and most do not usually stack up where the switch results in increased costs.

It’s not as good as ours …
… and while we are on the topic of switching …
Many firms have a centralised investment proposition – complete with a preferred platform and model portfolios. That is fine, but it is important to remember that, just because you prefer it, does not make it an automatic no brainer right solution for every client. Sometimes, more often than might be thought actually, what the client already has is perfectly good. If the firm agrees with the client to provide ongoing service then sign the client up for that service. Switching everything that the client already has is NOT a prerequisite to providing service.

Fees a jolly good fellow …
Firms must have a published standard fee scale. Yet we do come across cases where the fee being charged bears no resemblance to the scale fee with no reason indicated as to why the fee is different to the norm. The rules require that fees should generally match the scale and, in those exceptional cases where a different fee is being charged, the client must be informed and a central record maintained of all such off scale fees. Firms where this occurs regularly need to consider whether it is the scale of fees that is wrong.

Mission impossible …
The whole point of all the fact finding, risk profiling and needs analysis that advisers undertake is to identify what the client is trying to achieve and recommending a suitable solution to achieve it. However, sometimes the analysis will highlight that the client’s objective cannot be met. In those cases, it not good enough to a) ignore that fact and recommend what you were going to anyway or b) acknowledge that fact and recommend what you were going to anyway!

The appropriate response is to discuss the issue with the client in order to manage expectations and, if necessary, adjust the objective. We cannot recall ever seeing a recommendation that the client should consider retiring later, save more or re-assess expenditure if it is clear that the pension pot is not going to be sufficient or sustainable.

Objectionable …
Of course, the previous entry requires that the client’s objectives have been properly identified in the first place. They often are not. The usual problem is that advisers list product features which masquerade as objectives. For example:

  • You want to access the pension cash without taking income
  • You want to be able to draw income flexibly
  • You want the option to be able to leave remaining funds to your family

 

That is a good description of a drawdown plan but is not a set of client objectives.

Similarly, client preferences often take the place of objectives. 

  • You want to transfer your pension to a flexible plan so you can draw the cash sum

The objective here is not to transfer the pension but to raise a cash sum. There might be other ways of achieving that beside transferring the pension. As stated, the ‘objective’ is merely a preference.

A good test for whether you have an objective or not is to assess if it is an outcome or a means of getting to an outcome. ‘You want to review your pensions’ is not an outcome and therefore not an objective. 

Out of balance …
Suitability reports are often unbalanced, devoting lots of space to the advantages of the recommendation and insufficient space to the risks and disadvantages. Disclosing the risks and disadvantages is a suitability requirement.

Are you sure that’s right?
We are always frustrated when we see firms using out of date report templates i.e. where tax rates or other regularly varying information has not been updated. Of greater concern than the poor impression this can give to knowledgeable clients is the potential for misleading less knowledgeable clients.

This problem can be solved very easily by using good report writing software. ATEB Suitability is intelligent report writing software and is used by a large number of firms. We do all the updating when tax or other aspects change. You would never have an out of date report ever again. Click here for more information.

Carried away with cash flow …
Cash flow models are increasingly prevalent in suitability reports. They can undoubtedly help advisers and clients to understand what the client’s future might look like. Cash flow modelling is especially useful when considering a defined benefit pension transfer. However, advisers do get carried away by the mass of data and charts they can create with a few mouse clicks and often prepare multiple versions to the point of overkill. It’s a case of why do one, when you can do ten? As is often the case, less really is more in this respect. Don’t confuse the client with too much data.

Contact your usual ATEB Consultant if you would like to discuss our file checking services or contact ATEB here.

ATEB Consulting is a trading name of ATEB Business Solutions Limited Registered in England & Wales Reg. No: 5075208. Registered office: Evolve Business Centre, Cygnet Way, Houghton-le-Spring, County Durham, DH4 5QY.

Risk Disclaimer

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

It has been produced for information only. Views and opinions should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned. No action must be taken or refrained from being taken based on this content alone.

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