The Man in The Mirror

by Damian Davies on 22·02·2017

SJP are getting a proper kicking by the press at the moment.

It doesn't seem to be just from one publication either, so it can't really be called a grudge.

The latest story is about how "Restricted advice group St James's Place (SJP) has been ordered by the Financial Ombudsman Service (FOS) to pay compensation to a client with Alzheimer's for unsuitable advice on an ISA transfer."

The headline was particularly leading, making you assume SJP were exploiting the fact the client had Alzheimer's so you expect to read some kind of 'swag bag' piece.

In actual fact, the story itself was very important for ANYONE who gives regulated advice to the public.

The upshot was that the adviser was not able to prove the client would not have been better served by keeping their existing ISA rather than transferring it to an SJP ISA (nothing to do with the Alzheimer's!).

So, what was said by SJP in their own defence and what was concluded by the ombudsman

SJP cited seven reasons why they felt it was suitable to transfer.

• control of the investment mandate;
• access to data about the funds it managed;
• flexibility to replace a manager at short notice;
• members of the investment committee are selected for particular expertise;
• the investment committee contains independent experts not directly employed by SJP;
• SJP employs a behavioural psychologist to sit in on manager monitoring meetings, who tells the committee when a manager shows 'unusual behaviour traits' to certain areas of questioning;
• SJP has an exclusive relationship with an independent investment consultancy firm and several fund managers.

SJP also argued that although charges were higher after transferring to its ISAs, the focus should be on 'value for money'. According to SJP, this justified the transfer as the funds would deliver 'above average returns' net of fees.

The reality is that no client would ever really ask for things like this and most of these are actually OUTCOMES of the transfer rather than a client driven REASON for the transfer.

The Ombudsman said, "the suitability letter did not include detail on why investing with SJP was a better option than not transferring."

CIPs, platforms, AUM - these are all good tools to make an advisers life easier and a service to a client better and more efficient.  They are not, however, the reason a client comes to an adviser in the first place. 

I feel confident to predict that no client EVER asked for things like:

• Online access to portfolios
• To consolidate my pensions
• To have ease of administration in my affairs
• To have access to over 2,000 funds from a range of investment professionals
• To have an unfettered range of funds

Because we have evolved so much as a profession over the last 6 years or so, we feel really clever with the things we do now, but clients probably don't really care that much about them - we can't take any credit for acting professionally, it's what we are supposed to do.

I don't know, or really care, how the engine works in my car - or that a different make builds theirs differently - if I get a car, I expect it to have an engine and for it to be reliable.

To make sure not to come unstuck on suitability, there are a couple of easy tricks to follow:

1. Record the client's objectives in their own words.  By this, I don't mean write it down - actually record it.  There are some great tools to do this, whether it's an app on a phone or a specialist tool like a livescribe pen.   
2. Refresh yourself with COBS.  If you have a read of COBS 9.2 (assessing suitability) and COBS 9.4 (suitability reports) you'll see that a good fact find will actually write 75% of your suitability report for you!
3. Deliver back the client's objectives in their own words in the suitability report - You have to put the client's objectives in the suitability report anyway, so why not use their own language.  It will help them know that you have understood what they want to achieve. 
4. Avoid interpreting the client's objectives into our language.  Let's face it, it's too easy when a client says, 'I have a bunch of pensions and I am not sure what they all do' to interpret that as 'the client wants to consolidate their pensions' - these are different things.
5. Refer back to those objectives whenever you make a recommendation.  You will usually find one objective needs action across lots of different areas (pensions, investments, protection) so bring it all together in an action plan.
6. Have a default assumption that the client's existing arrangements will serve them perfectly well.    Too often, particularly when earnings are based on AUM, it's easy to assume a client should move to a CIP when actually the benefits are borderline.  Careful analysis of charges and the commensurate benefits needs to be applied.
7. Read FG12/16 - it's only 20something pages long and a brilliant read, full of best practice tips on doing replacement business well.  I feel confident that the findings from the FCAs thematic review into suitability will be reflective of this, one of the last documents the FSA produced.

It's sometimes too easy to be driven by a fear of compliance.  Putting the client's objectives front and centre actually enables compliance to take care of itself. Everyone wins.