Periodic Suitability Reviews

MiFID II has been in force for over two years and still, we find there is a lot of debate as to how best to approach Periodic Suitability Reviews. There are enough articles and blogs covering this topic in general, and we aren’t looking to rehash old territory. However, we still see discussions on the best approach to cover certain aspect, one of the main ones being costs disclosure. So, this is the topic of discussion today.

This will be quick!

Very briefly, I’ll start with a look at the two main things that PSRs require:

An assessment of suitability. This means revisiting a client’s objectives, risk profile, and the plan, and reconfirming if the plan remains suitable.
The costs a client has paid over the last 12 months (ex-post costs), and projected costs over the next 12 months (ex-ante costs).

These can be provided as one single document, or separately.

The cost debates…

Two of the main arguments are whether advisers can rely on the annual statements of ex-post costs issued by product providers, and whether to also include non-MiFID II business in this cost disclosure. We are going to look at each in turn.

Annual statements

So, providers are required to issue an annual statement of ex-post costs to the client, and there is an argument that this covers the requirement to disclose ex-post costs, and that the adviser can then just look at a suitability assessment, and what the expected charges are over the next 12 months.

There are several potential issues with this…

Firstly, the provider’s annual statement may not tie in with your own reviews. This can be confusing for the client if they receive one set of figures from their provider and another from the adviser. It also creates extra work for the office staff in obtaining more information outside of the review date of the product.

Secondly, it is important to keep things as simple and understandable to a client as possible. Where a client has multiple plans via various providers, receiving various annual cost disclosures, which may be set out in different formats (and sent at different times), plus a suitability review (which may be at a different time of year), can be very confusing!

Thirdly, providers are not perfect; we know mistakes can and do happen, and comparing the ex-post costs against the actual fees you have received as the adviser, and the product charges you understand are being deducted, can help to flag up such errors.

None of us want to make our job more difficult than it needs to be, or spend time on the unnecessary. However, if an ongoing service is what a client is paying for, then it is fair for them to expect something which is understandable, concise and correct.

Non-MiFID products

The disclosure of ex-post costs is only currently a requirement of MiFID II business, meaning that technically, it is not a requirement of certain financial instruments, such as insurance products, and pensions.

The next debate is then; is it still worth getting ex-post costs on such plans if possible? (And sometimes, it is difficult, if not impossible (not mentioning any names!).

We would argue that it is best practice to include these plans. Where clients hold both MiFID II and non-MIFID II products, receiving different information about different plans just adds to the confusion. Providing ex-post costs on all plans provides them with clarity on all of their plans, and ensures that you are being fully transparent.

Secondly, while none of us can predict the future, chances are, if this legislation changes, it will tighten up, not recede. It is realistically possible that this could become a requirement in the future, and having a robust process in place if it does come around will have you ahead of the curve! Some providers definitely agree with this sentiment, and already send out ex-post disclosures.

We got this

At Para-Sols, we feel we have it nailed, both in terms of what legislation requires, and also best practice. If you are struggling, or want to discuss it further, we can either advise you, assist with creating your own PSR templates, or just do your PSRs for you.