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It was really just a matter of time before it happened following the implementation of Consumer Duty, and sure enough, the FCA contacted several large firms requesting data about their activities in relation to reviews.

This was covered in detail in the financial press and the headlines since told us that one firm has made a massive financial provision for redress and another has been told to appoint a Skilled Person to look at the problem (a Section 166 in compliance parlance), but is this the end of the story? No, it isn’t.

What now?

It hasn’t hit the main industry press yet, but we’re aware that the regulator has approached some large firms for more data relating to reviews, again going back to 2017 (you were aware that the FCA is going back to when MiFID II became effective weren’t you?).

What they want to know now is:

• The number of clients where multiple reviews were missed.
• The number who missed consecutive reviews in that time period, and;
• The reasons why those reviews were missed.

So it’s not just that reviews have been missed, but when they’ve been missed more than once and/or consecutively you can bet your bottom dollar that the regulator will want to know how many of these clients received refunds, but perhaps there’s more to this still.

If reviews have been missed consecutively that’s bad enough, but it’s the reasons behind why they were missed that thicken the plot.

Reasons why not

The reasons we hear for reviews not being done are seemingly endless, but there are a few standouts that appear with great regularity.

“Couldn’t contact the client” is the most common. If the client was asked to pay for the review after it was completed you can bet your life that reviews would be done on time, every time, but because the client effectively pays in advance, the firm has the money already, so if they don’t deliver they just blame it on not being able to get in touch. This will not wash with the FCA.

Even then, there’s a rule that says you still have to do the review and it’s in COBS 9A.3.9, which says that:

Investment firms providing a periodic suitability assessment shall review, in order to enhance the service, the suitability of the recommendations given at least annually. The frequency of this assessment shall be increased depending on the risk profile of the client and the type of financial instruments recommended.

This still means that a PSA must take place, even if client contact hasn’t been established, and don’t forget that every assessment of suitability requires a report to be issued, so unable to contact won’t cover it.

Note the word ‘increased’ in the rule. Some firms can’t manage one review a year, never mind more than one, but for some clients, one review a year isn’t sufficient. It’s up to you to decide what risk profile triggers this, but remember that there are two ends to the risk spectrum and the rules don’t specify which end.

Another stalwart is “the client declined the review”. Wonder why? Perhaps because they see no value in the ongoing service and maybe shouldn’t have been signed up for it in the first place. In some firms, virtually every client has been signed up whether they need a review or not. Some clearly don’t.

If the review is declined, then shouldn’t the client get all or most of their money back? Refunds for missed reviews were part of the first data request the FCA issued, so you can bet that they’ll be looking at this again. How can the firm keep the money when they’ve not delivered what was promised? Would you pay for something you didn’t receive?

In audits we regularly see ongoing service propositions where clients pay hundreds, and sometimes thousands of pounds each year, just for the privilege of being able to speak to an adviser and getting a regular newsletter. Really? Most clients only speak with their adviser at reviews, so how do firms justify this approach? Would you fall over yourself to pay a builder or plumber a retainer just so you could call him or her? No chance.

Some of these clients only get a review if they actually ask for one, for which some firms charge extra. Would you pay in these circumstances? Thought not.

Our View

Anyone who thought that this issue was going to go away was clearly mistaken. The FCA is pursuing firms to ensure that they deliver to clients what they were promised and have paid for. And rightly so.

The latest data request is clearly aimed at firms where multiple or consecutive reviews have been missed and the regulator wants to know the underlying reasons, and whether clients were reimbursed.

Even pre-RDR, firms recognised the benefits of a revenue stream that wasn’t reliant upon a new transaction and since the end of 2012 and the introduction of adviser charging, the floodgates have opened and the practice has grown exponentially. Some firms have even stopped writing new business altogether and instead rely on the dripping roast that OAC provides.

There are many diligent firms out there that do deliver what they promise of course, but there are also many that don’t and as we’ve seen, the regulator is asking some very searching questions, so those that have failed to do what they said they would could be facing some big bills.

This latest development is also interesting, in that firms that have a legacy of missed reviews may still be taken to task. After all, they’ve had the money and done nothing for it, so isn’t that fair? This isn’t just regulation, it’s just doing the right thing.

As we’ve said previously, good firms have little to fear because they do things properly, but those who cut corners may well end up getting close and personal with a regulator that they thought they’d never see.

Paul Jay - Senior Compliance Consultant 

Action required by you

If your firm has missed reviews and doesn’t have a robust, documented review process that clearly defines what is required, then it’s probably time it did.

We’re dealing with senior managers who are becoming acutely aware that it’s they who need to explain why and they who may be the ones footing the bill if things are found to be short of what’s required.

Some file checks or an audit can go a long way in helping identify issues, but more importantly, we can help provide solutions.

Contact our specialist team now to schedule a free consultation. Get in touch with us by calling 020 7436 0630 or sending an email to info@thistleinitiatives.co.uk.