FSA has published its finalised guidance on assessing suitability of replacement business and centralised investment propositions (CIPs). FSA was concerned that many firms are adapting their business models because of the Retail Distribution Review (RDR) and as a result the CIPs they offer risk leading to poor consumer outcomes. Its guidance highlights matters to which firms should pay particular attention, including:
- ensuring the costs of any investment solution the firm recommends are in the customer’s best interests, and the firm explains clearly to the customer why this is so;
- if performance is a reason for the recommendation, explaining why the new product is likely to outperform the old;
- ensuring the customer understands the tax implications;
- assessing suitability against information about the customer and its investment objectives; and
- assessing all relevant information about the customer and its existing investments to show why the existing investments no longer meet the customer’s needs.
FSA sees the benefits of the forms of CIP that firms may offer, but is concerned to ensure firms do not“shoe-horn” customers into their new strategies, and has identified risks of churning or incurring additional costs where there is no particular benefit to the customer. It wants the guidance to encourage firms to consider all relevant factors when switching customers between products and designing a CIP.(Source: FSA Finalises CIPs Guidance)