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There’s much in the financial press recently about ongoing reviews, and we’ve provided our fair share of commentary on the subject, but is there another issue that’s being overlooked – ‘no change’ reviews.

Despite all the headlines and deep dives into past activity relating to ongoing reviews, many clients actually receive a periodic suitability assessment every year and are issued with a suitability report thereafter, but how many of these record that there are no recommended changes? And how many have said the same thing for several years?

Where's the issue?

In many firms, virtually every client has been signed up for the firm’s ongoing review service (whether they needed it or not) and this is a promise by the firm/adviser to check that what’s been recommended remains in line with the client’s objectives (assuming they’ve been clearly articulated in the first place), personal and financial circumstances, views on risk and investment goals. In a lot of cases this is proven to be the case, which is fine and dandy.

Furthermore, as many firms are operating Centralised Investment Propositions (CIPs) and a high proportion of these involve either model portfolios, the use of DFMs, or portfolios that the firm’s investment committee decides upon, this usually translates into many clients being advised to place their investment and pension funds within them. Again, this is fine provided that the recommendations actually translate into a benefit to the client and it can be demonstrated to be the case.

As these solutions are more often than not risk-rated/targeted and rebalanced on a fairly regular basis, based on what we see, once clients are invested in these portfolios there aren’t that many who receive a recommendation to move to a different strategy, unless their views on risk have change markedly, so a lot of clients’ investments remain pretty much unchanged for a reasonably long period of time. 

Apart from checking that little has changed since the previous review, what exactly are advisers doing at these reviews?  

In reality, not that much in a fair number of cases. And if this situation perpetuates for a number of years and the client receives the same ‘no change’ suitability report (some clients will have received several now and they probably all look the same) are they really benefitting from the ongoing review service? Possibly not, in which case do they still need to pay for it, or would they better off not paying the full OAC and just contacting their adviser if their circumstances do change significantly?

How many clients are paying a percentage of their investments away each year for what amounts to a cup of tea and a bun, a valuation and a templated letter that says that nothing has changed? And if this scenario has continued for several years is it fair for them to do so?

In some cases clients undoubtedly feel that they do benefit from these reviews, but how many really don’t, and are paying the firm a lot of money every year?

The downside of CIPs

Maybe this inertia is an unforeseen consequence of CIPs themselves?

Firms creating a solution that seems to be one size fits all may have few options when it comes to reviews, because unless the client’s circumstances have changed significantly and they’ve acquired more cash, have a need to liquidate their investments to release cash, or their attitude to risk has tangibly moved one way or another, the adviser is unlikely to recommend any action at all and the no change scenario will perpetuate until something actually does change.

This is great for firms and advisers, because they still get their OAC each year and really don’t have to do much for it a lot of the time. And in a rising market that OAC grows too, so happy days, but what benefit is the client getting? After all, it’s their money.

Maybe a fair number of clients who invest via a firm’s CIP don’t actually need an annual review at all – remember the FCA’s Therese Chambers not long ago questioning whether or not clients actually needed an annual MOT? She may have a point.

Of course, firms will indignantly claim that many clients get much more than just an annual review and that they have several touch points with them throughout the year, and this is indubitably true for some clients, but many will also have a relationship similar to that described above and each year nothing changes.

So when the FCA asks firms to evidence that they deliver fair value, how many of them can prove that they do so for clients who year-after-year receive exactly the same outcome?

A bit of a knife edge

The FCA may have a problem here. They’re obviously trying to ensure that consumers receive fair value and that firms deliver good client outcomes, but at the same time these no change scenarios perhaps only do part of this. Furthermore, in driving these outcomes is the FCA potentially threatening firms’ cashflow, and perhaps, their survival?

Where firms haven’t done their client segmentation under PROD and target market identification for Consumer Duty maybe this may be where the FCA will start focusing attention?

Our View?

Whichever way you slice and dice it, Consumer Duty is starting to change the landscape in some firms and those who genuinely place the best interests of their clients closely examining what they do and the outcomes that clients receive. For these firms Consumer Duty might be a pain, but they can also see the benefits and are developing their propositions so that they can evidence they’re delivering good outcomes.

There are other firms though that either can’t, or more probably, won’t change the way they do things. After all, recurring income from OACs has been very lucrative and they’ve not had a litany of client complaints, so why change?

As we’ve seen, two of the largest firms in the UK have already felt the pain of things not being done as they should, but based on the evidence we see, there are plenty more firms out there doing exactly the same thing.

There are also plenty of firms that perform scores of no change reviews every year and operate on the basis described above, but until they’re forced to change their approach, few will.

It’s all gone a little quiet out there at present, similar to the way it was before Consumer Duty mark one landed, but after it did things changed radically. Perhaps one CD II has come and gone the FCA will again turn its focus on firms that they haven’t previously dealt with directly? Perhaps the CMCs will turn their focus on what firms do for the money, rather than on what they didn’t? No change reviews and no changes in firms probably won’t end well for some.

Action required by you

Pretty obvious really. If any of the above starts alarm bells ringing then maybe your firm needs to adopt a different tack. Unless you can clearly demonstrate that you’re actually doing something tangible and that this translates into actual benefits for clients, how do you evidence fair value is being delivered?

There are still loads of firms out there that really haven’t changed a thing and Consumer Duty has been a purely cosmetic exercise. If an information request lands in your inbox how will you deal with it? Ten working days to respond isn’t long at all, so get an audit of your processes organised and make sure they stack up.

Getting things right often isn’t that difficult, so contact us to find out how we can help.

Author - Paul Jay - Senior Compliance Consultant