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Suitability: how far back should you go? Our readers respond
by Anna Dumas on Jun 20, 2014 at 07:43
The news that Coutts is to conduct a suitability review of all of its clients’ holdings dating back to 1957 has made waves in the industry. The issue of suitability is one of the Financial Conduct Authority’s key focuses, so how far back should wealth managers take their reviews to ensure clients have not been put at risk?
Phillip Hilton, senior investment manager, Sanlam Private Investments
‘Assessing suitability is about ensuring that we, as investment managers, correctly identify the amount of investment risk to which it is appropriate to expose a client. We therefore seek to build a client’s “true risk profile” using our proprietary tools and knowledge. Essentially, this is all part of the Know Your Client process.
‘The process of assessing suitability is ongoing. Client relationship management lies at the heart of ensuring client suitability is sound.
‘Client agreement to the outcome of the suitability review is absolutely vital.
‘It is hard to say how far back you should review when assessing suitability of clients’ past investments but their financial background informs the decisions you make for them now. It is important to look for the relevant data and not waste resources. But the most important thing is what assets they have now and what will be affected.
‘Suitability is not only important for the client but it helps wealth managers as well. Having a close relationship with your clients and knowing their circumstances in depth helps to build their trust in you. If you make the effort with them, they value your expertise and service more.’
James Chu, director, Reyker, London
‘There are discussions surrounding how far back firms and individuals should look when assessing suitability. If suitability has always been embedded in the firm’s culture, this should never be a problem. This is probably why the Financial Conduct Authority has been emphasising the importance of a firm’s culture only recently.
‘As wealth managers we always act with care and treat fiduciary duties seriously, regardless of what the regulations said at that time. Such concepts were often advocated by professional organisations (eg, the CFA Institute) well before the retail distribution review was even suggested.
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