Pet hates of a file reviewer

The top pet hates of a client file reviewer

October 2020

John Begg

Senior Compliance Consultant, ATEB Consulting

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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 why some template wordings should be avoided or how they may be improved
  • Learn some of the ways that suitability letters can be improved upon by making them client specific and avoiding some frequently used generic standard wordings that do not adequately support the recommendation
  • Gain a third-party perspective on the impact of generic suitability wordings in what should be a client specific report

One of the services we provide for many clients is reviewing client files, either as the primary reviewer or as an external check on reviews done in house.

As you can imagine, we are all really interesting and fun-loving people here at ATEB and love nothing better than a good file review session! However, the feel-good ambience can be easily ruined by some, regrettably not uncommon, issues. So here you have it, our top twelve list of file reviewer pet hates, in reverse order.

12 – Stakeholder discounted because of insufficient fund choice

Stakeholder pensions started in 2001. Advisers were obliged to consider them. It took advisers approximately 15.5 seconds to come up with this reason for not recommending a Stakeholder pension. To be honest, even in 2001 it was a bit of a lame cop-out … no client ever needed access to 4000 funds, and the client was then usually advised to invest in only one or two funds anyway. So, you would think that in the intervening nineteen years somebody would have come up with a more credible reason. And here is a radical suggestion, why not just use the real reason. For example, “There are less expensive plans available.”

ATEB tip – if you have not reviewed, we mean really read, your report wordings in the last year (or nineteen!), now would be a good time.

11 – Poor client files – soft facts

You will readily understand that it makes the poor file reviewer’s job much more difficult if some key evidence is hard to find because a) the file is a mess or b) worse, the key evidence is not there.

We often see files with woefully inadequate soft facts. The hard facts without the soft facts are like … nigh on useless! Following such a file review, advisers often say something like, “Oh yes. I discussed that with the client and he confirmed that …” to which we say something like*, “so why the heck did you not write that down?”

(* ‘something like’ means – not exactly in those words but something like those words!)

10 – Questionable research

Grateful though we usually are to see any evidence of research, we do wince a little when the research is supplied by the provider being recommended.

9 – Provider recommended because they are big

We see this all the time – “I have recommended XYZ Provider plc because they are humungous and have billions of funds under management … and they give us great service too.”

We would suggest that every provider that firms would seriously consider recommending has lots of funds under management. Why would £500bn make one provider any more suitable for the client than another with £400bn? Answer – it doesn’t. Reasons for recommendation should be differentiating not just something that applies to many options. The client, and the file reviewer, need to know, “Why that one?”

8 – There’s a product for every problem

There is a saying that goes like this … “To a man with a hammer, every problem looks like a nail”

We often see recommendations for a product when a non-product solution would have been more suitable – or at least should have been considered.

7 – Generic, non-client specific rationale

In a similar vein, we also see lots of generic rationale given for recommending particular solutions – especially use of a platform. A bit like this –

  • A platform is a popular way to invest (so what?)
  • You can keep all your investments in one place (not necessarily a benefit)
  • The platform has competitive charges (but it doesn’t have the lowest charges otherwise I would have said that!)
  • You can access loads of funds through the platform (you can also access loads of funds without the platform – and maybe with lower overall charges)

You get the picture. Rationale should be client specific and differentiating. And remember that there is no rule requiring X number of reasons why. If there is only one reason for a recommendation, then one reason is enough.

6 – Self-fulfilling rationale

We really hate this one.

“You should switch from your existing plan because it does not offer access to the Superduper model portfolio number five that I am recommending.”

Enough said.

5 – Poor use of templates

  • Including lots of text because it is in the template rather than because it is relevant
  • Not including relevant text because it is not in the template
  • And, of course, the ultimate cardinal sin is to not amend details relating to the previous client that the same report was used for

4 – Past performance

A chart or figures table copy/pasted in from a fund fact sheet. Usually the basis and source of the data is not stated. There is a reason why fund fact sheets have so much information. Most of it is a regulatory requirement both in terms of what is included and how it is presented. Copy/pasting a small section usually means that the ‘compliance’ of the data extracted is compromised. Much better to simply refer to an enclosed fund fact sheet instead of extracting little snippets here and there.

While we are mentioning past performance, we would point out that most fund performance data does not include all fund charges and, of course the performance data will not, indeed cannot, include plan or platform charges or adviser charges. That lot can significantly reduce the return actually available to the client so to quote the headline annual returns is actually misleading.

3 – Risk profiling

Most tools out there purport to assess the client’s attitude to risk, using volatility as a proxy for risk. But many of the tools do not address capacity for loss and/or the client’s experience adequately – or even at all. Sometimes, even when the risk profiling process seems to be fine, it is not obvious how a particular portfolio matches that risk profile.

2 – Client objectives that are adviser / product led

The most common of these by far are just a list of product features and not client objectives. For example:

“You want to take your PCLS at age 55, have flexible income and leave funds to your family in the event of death.”

Guess what the recommended plan was.

Sometimes the product feature is even more specific. Our biggest groan accompanies this one:

“You told me you wanted a ‘smoothed fund’.”

Guess the recommended provider.

Now, the man from the PRU does not knock on doors these days so it is a pretty safe bet that client had never heard of ‘smoothed funds’ before the adviser turned up.

1 – Reports being twice as long as they need to be

And finally, in the number one slot, need we say more. The longer the report the more likely it is that there is stuff in there that is irrelevant or repeated or simply not presented as concisely and understandably as it could be.

“I didn’t have time to write a short letter … so I wrote a long one instead!”

(Mark Twain in a letter to a friend.)

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.

Our view

Half in jest – whole in earnest. Although intended to be a light-hearted, there are some serious points.

Contact your usual ATEB Consultant for further assistance with a review of advice processes 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.

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