1. How to advise – the easy way October 2014
This note will be nothing new to an experienced adviser. However, it may remind people of the
simple process that should be followed.
Identify yourself
The adviser should make a prospective client aware of who they are, what they do and how
much their services will cost the client.
The adviser will normally do this with a business card and initial disclosure documents, such as
a client agreement, service proposition and fee agreements.
Identify your client
It is important for the adviser to know who the adviser is dealing with and hopefully advising.
There is normally a set document for an adviser to record this, which has nice boxes to write
down the relevant information from passports or driving licences for identity and bank
statements or bills to prove their address.
The identity form also includes a box relating to the source of investment funds. The origin of
any funds may well affect the clients’ attitude to their use. This is an important and often
unused part of the form.
However, the identification of the client and their ownership of any funds is more important
than the completion of the form.
Get to know your client
This is actually the most important part of the advice process.
An adviser cannot advise a client without getting to know them and understand them.
This is normally done using a “fact find” document, which will provide a good aide memoire for
all the questions that should be asked to give an overall picture of the client’s circumstances
and financial position.
Considering that most advisers have access to a substantial document, it is amazing how many
simply use a piece of paper to record an awful lot of information in an unstructured manner.
Any information about any policies or arrangements should be verified by documents from the
providers. Where possible copies should be held on file. Sight of original documents will enable

2. the adviser to know the nature of the arrangement. These should all be recorded on the fact
find.
Many clients would not know the difference between level term assurance (life cover) and
decreasing term assurance (mortgage protection life cover). They may not remember whether
a policy includes critical illness cover or waiver of premium cover. Do clients understand the
difference between income protection, permanent health insurance and Mortgage payment
protection (short term income replacement)? Personal pension or SIPP or EPP?
Once the adviser has ascertained what plans the client has in place, they can consider whether
these are still suitable for the clients in line with the clients’ current objectives.
Client objectives
The client objectives are the sole purpose for meeting the financial adviser. These objectives
may involve short, medium and long-term aspirations. These objectives may need to be
prioritised as they may not all be achievable, due to budget or timescales involved.
Many advisers feel that detailed study of the clients’ budget is intrusive and patronising.
However, this is important when assessing how realistic an objective may be. Often, setting
priorities will involve considering the importance of objectives, whether the achievement of
some objectives is preferable to others. Or whether the non-achievement of certain objectives
would cause detriment to the client.
Often the consideration of objectives will involve some compromise where the clients may
need to choose one objective over another or consider setting their sights lower to fit in with
budgets.
All the discussions around client objectives should be recorded on the fact find.
Attitude to risk
The consideration of attitude to risk is often misunderstood within the advice process. It is
actually under-utilised. Many advisers seem to believe that this only relates to investment.
However, it is relevant to all areas of financial advice.
What is the risk of having no or inadequate life cover? Income protection? Other insurance?
What is the risk involved in buy-to-let mortgage borrowing?
What is the risk involved in house purchase and how a mortgage is repaid? Interest only?
Capital repayment?
What is the risk involved in unsecured borrowing? Secured borrowing?
What is the risk of making no pension provision? Taking PCLS? Buying an annuity? Going into
drawdown?

3. These are in addition to the normal consideration of the risks involved in any investment asset
class or investment product.
Investment risk in funds can be covered by the normal basic attitude to risk questionnaires,
but only as the basis of a more detailed discussion that should be recorded on the fact find.
Giving advice
Once the fact finding part of the process has reached a state of near completion, then the
advice process can start. It may well be that once the advice discussion starts, more details
may become available to complete the fact find. Certainly the consideration and prioritising of
the objectives is part of the advice process.
Treating customers fairly involves being honest with them about how realistic their objectives
are and also being clear about the actual cost of achieving objectives. This is where the client
may need to compromise on their objectives or to prioritise one objective over others.
It may well be that the advice process will involve the production of a detailed report. This is
good for the clients to be able to consider the advice and any options that are available to
them; being able to consider the information, re-read certain parts of the report, check
understanding. It also enables them to frame questions from which the answers will lead to an
informed decision as to the direction to take from the options available.
Undertaking research
This research starts with an identification of the details of any products already in place.
Without this research, it is not possible to ascertain any shortfalls or unaddressed objectives.
If a new product is required, it is important to record whatever process has been used to
identify the most suitable product to meet an objective. It is important that the process is
consistent as that should increase the chance of making the right choice.
This filtering will start with the suitability of a product. A bond or a NISA? Pension or a SIPP?
Then, there is likely to be a choice to be made about providers. On a platform? Other providers
for specific products? Then there may be a further choice within the product. In the case of
mortgages, what scheme? For investments, what funds are to be used?
Any research undertaken and illustrations produced should be maintained in the file.
Paperwork
It is good practice for the adviser to assist with the completion of documents and/or online
applications. The client should not be asked to sign blank forms. An adviser should not depend

4. on information provided from a previous application. The adviser should get the client to check
the forms are correct before signing the documents.
Any applications should be chased through by the adviser to ensure that all the business
proceeds in good time and keep the clients informed of the progress of the application
process.
Suitability letter
This should be either be produced for presentation to the client to assist in the decision
process in agreeing to proceed with a certain course of action or as soon as possible after the
business is written. This should provide a clear outline of the advice being given and how it
addresses client needs to achieve a certain objective.
The FCA is keen for this document to be written in plain English. The main body of the letter
should be kept reasonably short to cover the advice given. This letter would probably backed
up by appendices giving background information about products, product rules, providers,
legal issues etc. it is good practice to include a glossary of terms since the use of jargon within
financial services is pretty much unavoidable.
The suitability letter should outline both the pros and the cons of any course of action. Clients
should be made aware of the risks involved and possibly the consequences of the advice falling
short of, or even failing to achieve objectives.
The suitability letter needs to give accurate information about the adviser charges, in
monetary terms. Both for any initial costs and ongoing costs.
The suitability letter should also provide information about the cancellation rights for any
product that is involved in the advice.
The suitability letter should also confirm whether ongoing financial reviews will be provided.
This information should include when the review is due, what will happen at the review, the
cost of the review and how to cancel ongoing reviews.
Ongoing advice
The client should be made aware of whether they can expect any further service from the
adviser and the nature of that service and any costs that would be involved.
Any reviews undertaken should be recorded, on a fact find or similar document. The FCA gives
high importance to promised reviews actually being provided and at the time that has been
promised. This ongoing advice is very important to ensure that any advice given is still suitable
or that other objectives are addressed in a timely manner.

5. The FCA has been keen for advisers to classify their clients into various segments of service
levels. Most clients would be classified as retail clients, although corporate clients,
sophisticated clients and professional clients should also be identified. The retail clients should
be classified for the regularity of reviews or alternatively, at the other end of the scale,
transactional clients, who will not receive any further service unless they request it.
Conclusion
What should be quite plain from reading this article is the importance of recording information
at all stages of the process. It is important that any file is as complete as possible.
In the first case, more complete information used in a decision-making process is likely to lead
to more accurate advice being provided. This increases the probability of a good client
outcome, which must be the primary objective of financial advice.
It is not there simply to please the FCA. The FCA is unlikely to ever see most files. The client
outcome should be the main consideration.
Another benefit of a complete file is as a defence against future reviews or complaints. Only
written information is likely to be successful in either of these events. Advisers often know far
more about clients, than they commit to paper. This is very dangerous as it is then the memory
of the adviser against the memory of the complainant. Neither are likely to be infallible and
are subject to conflict of interest.
These days, complaints from the actual clients are less likely than complaints from Claims
Management Companies or family members or other advisers. The complete file is the best
defence.
Following this simple process and recording all stages of the process should lead to better
client outcomes.
Tony Catt
Compliance Officer
07899 847338