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Suitability: how far back should you go? Our readers respond
by Anna Dumas on Jun 20, 2014 at 07:43
‘We see the relationship with our clients like travelling along with them on an investment journey. Ensuring investments and advice are suitable for the changing circumstances of clients is the key to making sure this journey works with the right outcomes for the client.
‘In theory it should go as far back as possible to day one, although the regulatory requirement seems to be different. If a firm has nothing to hide from, it will have no problem to demonstrate suitability over any period.
‘In practice there are constraints, especially on paper-related records that were used. This is particularly true for clients with the longest relationships with the firm, which oddly will also be the focus of any review. So it won’t be surprising that firms are worried Coutts has set a precedent, as it can be highly disruptive. So the FCA may want to clarify whether they expect all wealth managers to follow Coutts.’
James Mahon, CEO, Church House Investment Management, Sherborne (pictured above)
‘Suitability sits firmly with my view that investment management for private individuals is all about risk management. Finding a suitable mix of investments for an individual client is the key stage after discovering what their true risk appetite is.
‘Managers need to be mindful of the changing nature of retail clients’ needs over time so regular reviews are imperative. Circumstances change for all the obvious reasons, so what is suitable will change.
‘But to get to what is suitable, the risks need to be explained and understood. I am concerned that a lot of ‘risk profiling’ seems to be based entirely on volatility. This can be one useful measure of outcomes but, particularly for retail clients, it can be a blunt tool. Risk has several components and for many the risk of permanent loss of capital (and its ability to produce an income stream) is likely to be the most important consideration.
‘If there is any doubt about the suitability of past investments then yes I think there is a need to look back to the outset of a relationship. You should look back as far as you can. I hope all managers have the ability to do this and too much information hasn’t headed into an “archive”.’
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