Bigger, restricted firms scored better in the FCA's suitability review and so supervisory focus will be on smaller firms as the FCA plans a follow up review in 2019.

The FCA's Review (trailed in its previous and current Business Plans) is aimed at improving the suitability of retail investment advice.

The review began in April 2016, and assessed 1,142 pension and investment advice files from 656 firms. Overall the review's findings were very positive but it still found three main issues:

1. Disclosure - Initial disclosure by some firms was found to be unacceptable. In particular, firms were disclosing an hourly charging structure without approximating their time, and firms used charging structures with a wide range of fees;

2. Replacement business - Some firms recommended that customers give up valuable guarantees without good reason, and customers were given solutions containing additional costs which appeared to outweigh any benefits gained; and

3. Risk profiling and mapping to investment solutions - Firms used their risk profiling tools too stringently – without considering or mitigating the limitations of the tool. Firms also recommended solutions which did not match the risk that some customers were willing or able to take.

Interestingly, the FCA also found that firms with 25 or more advisers performed better than smaller firms, both in providing suitable advice and in providing sufficient disclosure to customers.

The FCA has announced that it intends to resolve the problems observed with a communication programme throughout 2017 and into 2018 which shall provide further clarification of the FCA's expectations and start a dialogue with firms about how best to make improvements.

This review shall be repeated in 2019 to measure the success of the communications plan, as well as the implementation of new rules under MiFID II, PRIIPs and the IDD.

The FCA's choice of a communication programme gives it a broad scope but also shows a lighter touch – likely due to the overall positive findings of the review. By communicating examples of good practice and giving firms a chance to improve their own practices, the FCA highlights its expectations that firms approach compliance in a mature and cooperative manner. Whether such an approach is successful in changing practice within the sector will be evident in the 2019 review.