1. Investment Forum Regulatory Update Round 1 - 2019

2. Learning Objectives
Understand the key concerns from the FCA’s Assessing Suitability Reviews
Understand what Product Intervention and Governance (PROD) means to you
Identify the key changes EU legislation will have on UK regulation

3. 2018 What a year!

4. 2018 – What a year!
MiFID II
IDD
GDPR
PROD
Pension Transfers
SM&CR 2

5. MiFID II
The key aim of MiFID II was to strengthen protection for all clients
This gave us new rules and requirements

7. Who is most excited about MiFID II?

13. MiFID II – SimplyBiz Support

14. MiFID II
Suitability
Disclosure

15. Suitability
All investments have to be reviewed annually? Clients can no longer have biennial reviews? This will change the way we carry out reviews!
ACTION POINTS:
Review your service proposition
Ensure you have a robust investment review process
Always issue a suitability report following an investment review

16. We have not provided ex-post disclosure, are we in breach?
ACTION POINTS:
Understand the approach your platforms & providers have for disclosure of aggregated charges
Think how you will include any direct payments for your servicing charges in the aggregated costs
Remember the 10% rule; discretionary portfolio management – reporting required – check your agreement with the discretionary manager
Investment services and/or ancillary services – cost of advice, platform costs, discretionary fund management cost, etc.
£X,XXX
X.XX %
Financial instrument/The Product – the investment/scheme
Total costs and charges.
We have not provided ex-post disclosure, are we in breach?
Our service charge is paid directly by the client so how do we disclose this?
Some of our client portfolios have dropped by more than 10%. What do we do?

17. PROD

20. Firstly, we have produced a guide, available on the website – Operating Centre, Business Hub, Plans & Templates

21. No Yes What is PROD about
Determining suitability of individual investment / product that will be targeted to (potential) clients of the firm No
Understanding customers they deal with and target, having knowledge of the different types of investments / products that may be appropriate for them
Yes

22. Product Objectives PROD applies to: Manufacturers Distributors
It’s purpose is to

24. The Manufacturer When designing products they must:
Identify the target market and ‘negative’ market
Identify the risks, characteristics and objectives of the investment
Identify the intended distribution strategy

26. For the adviser PROD is about
Understanding the customers they deal with or target
Having knowledge of the different types of investments or products that may be appropriate for them
Demonstrating an understanding of the investments and products they distribute and the nature of their risks

27. So what does that mean? Is PROD a centralised investment proposition?
Is PROD your client segmentation process?
Is PROD is a high level look at the investments you think may be right for your clients?

28. NON-ADVISED DFM ADVISED RETAIL RISK PROD for Advisers
Understand the manufacturer's assessment Who are the (target) clients? Risks, commitments, objectives of the product i.e. complexity Distribution strategy
RETAIL
PROFESSIONAL
MARKET COUNTERPARTY

29. OF PROD Post Sales Review view products and their distribution method
After assessments have been made to the different types of investments/products and the distribution strategy of these, firms must review these on a regular basis to ensure there are no changes to the characteristics of the investment/product that could result in it becoming unsuitable. In addition, a review to the way in which these are distributed should confirm it continues to meet the needs of the firm’s (targeted) clients.
This is particularly relevant where the investment/product changes due to innovation and is highlighted in the following rules:

30. Post Sales for Manufacturers
Investment houses and product providers may seek information from firms but should only do this on an investment-by-investment basis or product-by-product basis i.e. it will not be on individual funds or the different types of life assurance offerings.

31. What will this look like
Types of clients you distribute it to
Distribution method
An overview of any complaints about the investment
General feedback from clients

33. SimplyBiz Support Compliance Plan Client Classification
Research and due diligence
Investment committee
KPI / MI Review Form
CPD activity

34. Support

35. Assessment of
Suitability

36. Assessing Suitability
FCA Thematic review carried out in 2016
656 firms contacted, 1,142 files reviewed
The purpose of the review was to assess:
How firms disclose their services
Quality of the advice

37. Disclosure: Overall results in 2016
In 53% of cases the firm provided acceptable disclosure
In 47% of cases, the firm provided unacceptable or uncertain disclosure

38. Quality of advice What it told us then
93% of cases were found to be suitable
7% of cases were either unclear or unsuitable

39. FCA Annual Report and Accounts
‘In 2019 we intend to re-assess the suitability of advice and conduct a further review’
‘Based upon advice delivered in 2018 we will measure how the results have changed since the 2016 review’
This will also allow the FCA to assess how firms have implemented the requirements introduced by MiFID II, PRIIPs and the IDD

40. Common issues from the 2016 review

41. Assessing Suitability
Disclosure - Common Issues:
Use of ranges on fee charges – no specific cost
No cash examples quoted
Applying a charge to all regular contributions for the initial cost of advice
Hourly rate with no indication of how long it will take
Tiered charging with incorrect or no examples

42. Assessing Suitability
Disclosure – Tiered charging structures
Always give cash examples for each of the tiers
Up to £100,000 – 3%
Up to £300,000 – 2%
Over £300,000 – 1% 
What is the charge to invest £350,000?

43. Assessing Suitability
Suitability – Common issues:
Generally a lack of soft facts about the client and in some instances no factfind on file
Suitability Reports being too long
Not personalised / use of generic text and jargon

44. SimplyBiz file review team
4395 files reviewed in 2018 –
2151 files graded suitable – 43%
2710 files graded unclear – 55%
75 files graded unsuitable – 2%

45. SimplyBiz file review team
Suitability – Common issues:
Pension switching cases – fact find states that the client wants to review their pension but no reason is stated
Drawdown – clients taking TFC but without stating the justification or need for this
Attitude to risk inconsistent with capacity for loss

46. Factual Case Study
Client at SRA retiring with a pension fund of circa £250K
He holds a few small investments but nothing significant
Married no dependents but spouse has reduced state pension but little to no private provision
TFC to be used for car, home improvements, etc.
Needed around £22K pa income to maintain lifestyle

47. Invested into drawdown in a risk rated 5 fund withdrawing <5%pa
The outcome of advice
Client stated he “did not want to purchase an annuity”
Money from pension would be used to cover essential outgoings
His ATR was 5 (on a scale up to 10)
He was a transactional client
Invested into drawdown in a risk rated 5 fund withdrawing <5%pa

48. The assessment of suitability
Grade: Unsuitable
Why didn’t the client want an annuity? Health?
Risk assessed but not capacity for loss
Sustainability of the fund not considered
No cashflow forecasting was on file
What was his investment experience?
What happens in the event of his death and his wife is left with the drawdown plan
Could they have qualified for state benefits?

49. SimplyBiz Support
We have a team qualified and experienced in-house and field compliance managers
Focused topics include:
Client file reviews
Client service reviews
Centralised Investment Propositions
Individual agreed agendas

50. Learning Outcomes
Understand the key concerns from the FCA’s Assessing Suitability Reviews
Understand what Product Intervention and Governance (PROD) means to you
Identify the key changes EU legislation will have on UK regulation