Periodic assessment of suitability under MiFID II
MiFID II, which comes into effect from 3rd January 2018 covers a lot of ground and will require many firms to make changes to advice processes.
COBS 9, the current primary source of rules and guidance on suitability will remain in place after 3rd January 2018. However, there is a whole new chapter, COBS 9A that will also apply to most firms and contains a few new requirements.
One of those requirements will place an enhanced obligation on firms to confirm in writing the continued suitability of a client’s existing investments each time a review is undertaken, and that such reviews should be at least annual.
"Firms providing investment advice must agree with a client whether a periodic assessment of suitability will be performed. If periodic assessment is to be performed it must be at least annually and the continued suitability confirmed in writing."
Most firms currently agree with the client whether ongoing reviews are required or not. Where ongoing service is to be provided, it is usually at least annually.
However, while we believe firms probably provide written confirmation of any changes to be made to the client's portfolio, it is less certain that there would always be written confirmation of the suitability of existing investments each time, if otherwise no changes or new investments are being made.
It is important to note such confirmation of continued suitability does not need to be War and Peace – a reference back to original report and brief confirmation is all that is required. The rules state -
“Where an investment firm provides a service that involves periodic suitability assessments and reports, the subsequent reports after the initial service is established may only cover changes in the services or instruments involved and/or the circumstances of the client and may not need to repeat all the details of the first report.”
The suitability requirements remain essentially the same under MiFID II as at present and it is already possible within our current software to create a comprehensive review report for any plans/products previously recommended. This can include:
- Changes to the clients ATR and/or personal and financial circumstances
- Review of Fund Performance and Investment Strategy
- Fund Switches/Portfolio Rebalancing
- Changes to Provider and/or Platform
- Changes to Flexible Income Levels or Contribution amounts.
- Confirmation of Ongoing Charges
We are therefore confident ATEB's intelligent suitability software will continue to help firms deliver effective suitability reports with minimum effort, enabling both the initial and ongoing reporting required under MiFID II.
However, we appreciate in instances where there has been no significant (material) change to the client’s circumstances or portfolio it is less certain that the full report functionality would be required. We will therefore be upgrading the system shortly to accommodate a simplified ‘Confirmation of Continued Suitability’ Template.
This will provide the ability to confirm, in writing, that the existing investments remain suitable to the client’s investment objectives and attitude to risk alongside a summary of the reasons why the investments continue to meet those objectives or alternatively, a statement referring the client back to the original suitability report for details on the original rationale.
In addition, users will have the ability to include an appendix with details of any ongoing charges associated with the investments.
Please note - before this letter is issued, the adviser needs to be satisfied that the products in question do indeed remain suitable and this internal assessment should be documented on the client file. The letter template is designed to provide written confirmation of the continued suitability of the client(s) existing investment(s) ONLY with an optional appendix to include details of ongoing charges. If other changes are being made, new investments recommended or where the client has had a significant (material) change to their financial circumstances (for example, a change to the client's ATR) we recommend the full report writing functionality be utilised
For further details on how suitability reports will be impacted under MiFID II please refer to ATEB Consulting’s blog below.
We will provide more information on this blog once the new Confirmation of Continued Suitability template is released.