The first challenge of the FCA’s TR16/1 Assessing Suitability: Research and due diligence of products and services was trying to work out what had happened to the rest of it. The industry has been watching and waiting for, oh, ever to hear the FCA’s glad tidings on all things due dil. And what did we get? Four-and-a-half pages of text. It was barely worth cracking open a new highlighter pen.
But there are a few nuggets in there. And for me an attention grabber was:
We found that a key driver of good research and due diligence was a corporate culture of challenge.
It seems those firms who are really on it when it comes to research and due dil are not content to go with the status quo flow. Challenge (and from this I read peer review) keeps everyone thinking about what they are doing (as opposed to just doing) and why.
It’s fair to say that we have a culture of challenge at the lang cat. Which sometimes goes beyond squabbles over washing up and posting inappropriate (and occasionally disturbing) pictures on Twitter. It’s less! Whatever you want (sorry) and more! Why? What will that achieve? Or How about X? And the end result is generally better as a consequence. It might be what you had in mind anyway but with more focus and clarity and a better consideration of the likely outcomes.
If you adopt this as part of business as usual then it becomes the norm to think through your position and process, getting in first with the questions you know you will likely be asked. Some challenges might be less obvious: I have a very similar client and I found they were better suited to Y, how did you get to Z? But if you know your client, your process and platforms then it should all be there to be seen.
Not everyone is a fan of challenge and the change it often brings in its wake; comfort zones are called that for a reason. But when it comes to client best interests then the comfort should come in the confidence of knowing that the decision reached (and reviewed in due course) is the most appropriate one for the client, taking everything into account. There may be trade-offs but as long as the client is clearly prioritised and fully informed then that’s a good start. And in the vast majority of cases, this is pretty much what happens.
Without this culture of challenge the process of research and due diligence was weakened. Specifically the FCA found:
- A lack of objectivity stemming from not understanding or challenging bias.
- Inadequate handling of any conflict of adviser and client interests.
Surely much of this is simply good (and basic) business practise and pretty obvious at that?Â Yes, but nothing is ever obvious to everyone. For instance, some firms were not clear on the criteria they used to assess the suitability of the products and services they recommended. Now there’s a situation in need of challenge and pronto.