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        • Quality of advice

This information provides firms advising on financial products to consumers with further help on how to improve their advice processes and reduce the risk of mis-selling.

This follows one of the largest pieces of 'thematic' work we have ever undertaken, which studied the way firms advise customers and identified some of the underlying factors that can lead to repeated episodes of mis-selling. Although we found many examples of good practice, in an unacceptable number of firms our work identified substantial failings in how advice on mainstream products is given.

Based on the results of this work, we have produced a cluster report for advisers. This sets out our findings and contains examples of good and poor practice which firms can consider, where appropriate, against their business model. We have also produced a factsheet and case studies for firms to help identify areas of their business to focus on.

• Quality of advice cluster report [PDF]
• Factsheet: Improving the quality of your financial advice process [PDF]
• Quality of advice: Case study 1
• Quality of advice: Case study 2

We will carry out further work specifically on firms' assessment of customer needs, on their communications to customers (suitability letters/ reports) and on their management information to monitor the quality of advice being given. In due course we will revisit our thematic work in the financial advice area to ensure that the necessary improvements have been made. In the meantime, we will follow up the most significant shortcomings with the individual firms concerned.

We reviewed investment advisers in both large and small financial advice firms, basing our research on typical customer requirements. We visited a representative sample of 50 firms and 'mystery shopped' a further 50 to determine whether the way they advised customers adhered to the Treating Customer Fairly principle. We also visited three large banks, one product provider and one distributor and observed some similarities with the findings from the visits to financial advice firms.

Key findings

Our work found many examples of good TCF practice but there remain an unacceptable number of firms that fail to take the steps necessary to reduce the risk of mis-selling, both in terms of the detailed rules and the wider principles. Key findings are:

• The quality of advice is dependent on the quality of advisers. We found that the quality of advice was much better in firms which had a robust training and competence regime. Approximately one-third of firms sampled did not have adequate training and competence procedures in place.
• Over half of the firms did not overall obtain adequate 'know your customer' information before giving recommendations, including on affordability and customer needs and objectives.
• Almost all of the firms held themselves out as offering a full advice service, but only a third actually undertook a full review of clients' needs and objectives. Very few gave consideration to debt repayment.
• More than half of the firms sampled provided a poor standard of suitability letter to their customers, or no letter at all. Firms should ensure that suitability letters/ reports are succinct but highlight the key information the customer needs, explain why they are making a particular recommendation, give a balanced view of the product, and highlight the risks associated with it.
• On the question of customers' options on paying for advice, a significant number of mystery-shopped firms claiming to be independent did not offer customers an option of paying for advice, as required by our rules. In some cases, where fees were offered, customers were being dissuaded from taking this option.
• In approximately half the firms reviewed the quality of advice was not monitored. It was also common for firms that obtained some form of management information not to act on it. We would expect senior management to have systems in place to satisfy themselves that the firm always treats customers fairly.

Further information

There are a number of FAQs relating to TCF that may be of interest to firms.
Frequently asked questions

We have published a research paper which sets out the findings of our mystery shopping research.
Quality of advice process in firms offering financial advice [PDF]

In addition to the most recent Cluster Reports, our 2005 Cluster reports may be of interest and assistance to those working on Treating Customers Fairly (TCF).
Cluster reports

 

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