A while back, I wrote about how every firm we work with seems to run its annual review process slightly differently. The same consultation proposing changes to what counts as sufficient information (see last week’s issue) is also proposing that firms should instead offer periodic reviews at a frequency reflecting the client’s needs, rather than a fixed annual one.

On paper, that sounds like flexibility. In practice, it’s a new decision a firm now has to make, and be able to explain.

Why “periodic” is harder than “annual”

An annual review has one big advantage: nobody has to think about it very hard. The date comes round, the review happens. It isn’t necessarily the right cadence for every client, but it’s simple, and it’s consistent.

Periodic reviews remove that simplicity. If the frequency is meant to reflect the client’s actual circumstances, someone has to decide what those circumstances call for, and then be able to explain why. A client in drawdown, relying on the portfolio for income, probably needs checking in on more often than someone twenty years from retirement with a straightforward pension. That much is obvious. What’s less obvious is how a firm decides, consistently, where every other client sits in between.

And once that decision exists, it needs the same discipline the annual review used to get automatically. If a client goes eighteen months between reviews instead of twelve, was that decided deliberately, based on their situation, or did it just happen because nobody flagged it?

What’s worth thinking about now

• Look at how review frequency actually gets decided today. Is it genuinely need-based already, or has “annual” been doing the thinking for you?
• Build some simple criteria for what pushes a client toward more frequent reviews. Drawdown, vulnerability, recent life changes and volatile portfolios are the obvious starting points.
• Document the reasoning per client, not just the date. “Reviewed every 12 months” and “reviewed every 12 months because of X” are very different things to show a regulator, or a new adviser picking up the file.
• Think about capacity. If review frequency becomes genuinely variable across the client bank, the servicing model behind it needs to flex with it too, not just the calendar.
• Check that the service agreement, client communications and charging structure still accurately describe what the client will receive.

That last point is one we spend a lot of time on with firms, if I’m honest. It’s rarely the review itself that’s the hard part. It’s building a servicing model, and a fee structure, flexible enough to support reviews that don’t all happen on the same twelve-month clock, without the whole operation losing its shape.

The FCA moving away from a fixed annual requirement doesn’t remove the need for a review process. It just moves the hard part earlier, from running the review to deciding when one’s actually needed. Firms who’ve never had to make that call before are about to need a reason for one.

What’s your process today for deciding when a client is due a review, and where would that reasoning live if someone asked to see it?

If you’d like to learn more about how we support financial planning firms with suitability consulting, annual reviews and operational support, you’ll find more information here:

Suitability Report Writing Services for Financial Advisers

A paraplanner I work with sent me a message a few weeks ago that just said, “have you seen CP26/10 yet?” I hadn’t, not properly. I’d seen it mentioned in passing and filed it under things @Paul and the team would probably be all over. By the end of that conversation, I understood why she’d flagged it.

CP26/10: Simplifying the pensions and investment advice rules

The FCA is proposing to change part of the wording underpinning suitability assessments. Right now, firms have to gather the information “necessary” to assess suitability. Under the new proposal, that becomes information that’s “sufficient” to reasonably demonstrate a recommendation is suitable.

Two words. Both sound perfectly reasonable on their own.

But swap one for the other and the question the file has to answer shifts. “Necessary” can easily be interpreted defensively, with firms gathering everything they might conceivably need. “Sufficient” appears to give more room for proportionality, but it also introduces a judgement firms will need to apply consistently: have we gathered enough, for this client, in this situation, to justify the recommendation we’ve made? That’s a harder question, and a much more interesting one.

Why this isn’t really a compliance question

I know you’ve heard me say this a few times before: I’m not a paraplanner, and I wouldn’t try to explain COBS 9 to anyone who actually writes suitability reports for a living. But I speak to a lot of people who do, along with advisers, business owners and heads of paraplanning, most days of the week, and the same concern keeps surfacing in slightly different words.

If “sufficient” becomes the standard, who decides what’s sufficient for a particular client? Is it the adviser, using years of experience to judge in the moment? Is it a template, built once and used for everyone regardless of the case in front of them? Is it whoever happens to be writing the report that day, using their own sense of what good enough looks like?

Because if the answer is all three, depending on who’s involved, a firm doesn’t really have one suitability standard. It has as many standards as it has people writing reports.

What we’d suggest doing now

The Policy Statement isn’t expected until Q4, so there’s no need to panic. But a few of the firms we work with have already started having this conversation internally, and a handful of things have come up as genuinely useful starting points:

• Read the actual wording on “sufficient” in the consultation paper itself, not just a summary of it. It’s short, and worth reading in full rather than relying on someone else’s interpretation.
• Pull a handful of recent files and ask honestly: would we be comfortable calling this file “sufficient” if we had to justify it, rather than “necessary” because we ticked the boxes on a template?
• Decide, as a team, who owns that judgement call, not file by file, but as a process for setting the standard everyone works to.

• Build in time to revisit this once the Policy Statement is actually published. Near-final proposals have a habit of shifting slightly at the last hurdle, and this one touches the language behind almost every recommendation a firm makes.

None of that needs to happen overnight. But a file standard that’s decided by habit rather than by design is exactly the kind of thing that gets harder to unpick the longer it’s left.

Where we fit into that conversation

This is genuinely the kind of conversation we end up having with firms anyway, usually not because anyone’s asked us to interpret the rules, but because we’re looking at the same files week in, week out, across different advisers and different cases. Consistency is often easier to spot from the outside than from inside a single desk.

We’d love to hear how you think “sufficient” will play out in practice for your files, and whether your firm has already started defining what that looks like.

If you’d like to learn more about how we support financial planning firms with suitability consulting, annual reviews and operational support, you’ll find more information here:

Suitability Report Writing Services for Financial Advisers

Since targeted support was confirmed, most of the discussion has focused on what it is and who can offer it. The conversations we’ve been having have been slightly different. They’re about what happens when a firm starts delivering targeted support alongside full regulated advice.

Two kinds of recommendation, one client bank

Targeted support isn’t full advice. It doesn’t need the same personal recommendation, and it doesn’t need a suitability report in the way COBS 9.4 requires for regulated advice. That’s rather the point of it, since it’s meant to be lighter touch, quicker to deliver, and available to people who wouldn’t otherwise get anything at all.

But most firms offering it won’t be running two separate businesses side by side. They’ll be running one client bank, where some clients get targeted support, some get full advice, and some get both at different points as their circumstances change.

That’s where it gets interesting from a file perspective, because the client doesn’t experience these as two different regulatory categories with two different standards behind them. As far as they’re concerned, their adviser told them to do something.

Where this could go wrong

The most likely failure probably isn’t a firm getting targeted support badly wrong for one particular client. It’s more likely to be a firm building it as a genuinely separate process, run by a different part of the business, with its own assumptions, its own records and its own owner, sitting alongside full advice rather than connected to it.

Six months in, nobody would necessarily notice. A year in, a file review or a client complaint might be what surfaces a case where the segment-level assumption and the client’s actual circumstances had drifted apart somewhere along the way.

That’s not really a targeted support problem specifically. It’s the same lesson firms have already learned from running annual reviews, onboarding and servicing slightly differently across a growing business. Consistency has to be designed in. It rarely happens by accident.

The consistency question

If targeted support is built around “people like you” assumptions, and full advice is built around one client’s actual circumstances, a firm needs to be confident the two aren’t pulling in different directions without anyone noticing. A few questions we’ve found useful when working through this with firms:

Would this client have received the same underlying message through full advice?

If targeted support nudges someone toward moving cash into investments, and a full suitability process for a similar client would have paused on capacity for loss, that’s worth catching before it becomes a pattern across the client bank, not afterwards.

Who is checking the assumptions behind the segment, rather than just the individual outcome?

Full advice gets checked file by file. Targeted support, by design, gets checked at the level of the segment and the assumptions sitting behind it, and that calls for a different kind of oversight rather than a lighter version of the one already in place.

What happens at the handover point?

If a client moves from targeted support into full advice, or the other way round, is there a clear record of what they were told, when, and on what basis? That record matters just as much as the suitability report itself.

What firms may want to evidence

For firms offering targeted support, or building toward it, a lot of the groundwork looks less like new advice process and more like new governance sitting behind it. That might include evidencing:

•     How a client is identified as belonging to a given segment, and on what data.

•     What assumptions sit behind the segment, and who signed them off.

•     How often those assumptions get reviewed, given they’re being applied to many clients rather than tested against one.

•     What a client is actually told, and how that record is kept, given there’s no suitability report to fall back on.

•     How a firm would spot targeted support and full advice pulling clients in different directions.

•     What happens if a client acts on targeted support and it turns out to be the wrong call for their specific circumstances.

•     Who owns the decision to move a client from targeted support into full advice, and when that trigger should be pulled.

None of that is about slowing targeted support down. It’s about giving the lighter-touch process the same discipline firms have spent years building into suitability files, just applied in a different way.

The question I keep coming back to

Targeted support is meant to help more people get useful support, and that’s a genuinely good thing for an industry that has spent years talking about the advice gap. But good intentions and good file evidencing are two different things.

For me, the real work over the next year isn’t building the targeted support proposition itself. It’s the quieter work of making sure it doesn’t drift away from what full advice is telling other clients, and that somebody in the business actually owns keeping the two aligned.

Targeted support is designed to close the advice gap. The firms that deliver it successfully won’t just be the ones that build a proposition. They’ll be the ones that build the governance around it.

Has your firm started thinking through how targeted support will sit alongside full advice, and who owns making sure the two stay consistent?

Further Reading

If you missed the first two editions of Behind Better Advice, you can read them here.

If you’d like to learn more about how we support financial planning firms with suitability consulting, annual reviews and operational support, you’ll find more information here.

When an advice firm starts to feel stretched, the obvious answer is often:

“We need another paraplanner.”

And sometimes, that’s exactly the right decision.

But before you start writing the job description, I think there’s one question worth asking…

What problem are we actually trying to solve?

Because needing more support doesn’t always mean needing another permanent employee.

Recruitment is a big investment. Not just financially, but in the time it takes to advertise, interview, wait out a notice period, onboard someone and help them get up to speed.

We know that first-hand. We’ve been recruiting ourselves recently, and finding experienced paraplanners isn’t always quick or straightforward. Even when you find the right person, there’s still a notice period to work through and time spent helping them settle into the business.

That’s not a reason not to recruit.

It’s simply a reminder that recruitment solves one problem, but it isn’t the answer to every problem.

Is it really a capacity issue?

Perhaps the business has grown and there genuinely aren’t enough hours in the day.

If that’s the case, recruiting may well be the right decision.

But sometimes the pressure is temporary.

It might be tax year end.

It might be a maternity leave.

It might be someone handing in their notice.

It might be an unexpected increase in new business.

Or it might simply be that the team needs a bit of breathing space while recruitment is underway.

They’re all slightly different situations, and they don’t necessarily need the same solution.

Or is something else causing the pressure?

Sometimes a team feels overloaded because the workload has increased.

Sometimes it’s because the process around the work has become inefficient.

Cases bounce backwards and forwards because something is missing.

Reports sit waiting for approval.

Advisers spend time chasing updates.

Paraplanners end up doing work that could sit elsewhere in the process.

Adding another person might ease the pressure.

But it might not solve what’s creating it.

Do you need another person, or different capability?

One of the things I’ve noticed over the past couple of years is that the support advice firms need has become much broader.

It isn’t always about writing another suitability report.

Sometimes it’s an experienced technical sounding board.

Sometimes it’s implementation support.

Sometimes it’s help with annual reviews.

Sometimes it’s improving workflows.

Sometimes it’s simply having extra capacity available when things get busy.

They’re all different challenges, but it’s easy to bundle them together under one sentence:

“We need another paraplanner.”

It doesn’t have to be in-house or outsourced

I think this is where the conversation is changing.

The firms we work with aren’t choosing between an in-house team and outsourced support.

Many have both.

They recruit because they want to invest in their business long term.

They bring in external support because they need flexibility, specialist experience or extra capacity while they continue to grow.

One doesn’t replace the other.

Often, they complement each other.

For me, that’s probably the biggest shift I’ve seen over the last few years.

Outsourcing isn’t just about filling a gap anymore.

It’s about giving firms access to capability exactly when they need it.

If your firm suddenly became 30% busier tomorrow, what would your first instinct be?

Would you recruit?

Would you improve your processes?

Or would you bring in some external support while you worked out the best long-term solution?

I’d be genuinely interested to hear how other firms approach it.

For firms weighing up their options, it can help to look at the wider picture rather than treating recruitment as the only answer. That might mean bringing in outsourced paraplanning support for extra capacity, reviewing where process improvements could remove pressure, or using external support for areas such as annual planning reviews while the in-house team focuses on the work that needs their attention most. The right solution will be different for every firm, but having more than one option usually makes it easier to respond without rushing into the wrong decision.

Over the past few weeks, I’ve noticed a real shift in the conversations happening around AI.

Not that long ago, people were asking what it might be able to do.

Now they’re talking about what it’s already doing.

People are comparing different tools, sharing how much time they’ve saved and swapping ideas on everything from meeting notes and task creation to document generation and form filling.

I found myself reading one of those discussions this week and it really got me thinking.

Interestingly, nobody was talking about replacing advisers.

Or technical judgement.

Or suitability.

Instead, they were talking about saving time.

That felt significant.

Because maybe we’ve been asking the wrong question.

Rather than asking whether AI can produce a document, perhaps we should be asking what becomes more valuable once producing the document takes less time.

That thought stayed with me throughout the week, particularly because of the conversations I was having with advice firms.

One firm got in touch on a Friday. We met on the Monday, agreed everything by Wednesday, completed the onboarding on Thursday and had them ready to send work by Friday. They needed support quickly, but they also wanted a provider willing to fit around the way they already worked, rather than asking them to adopt someone else’s templates and processes.

Another firm wasn’t in a hurry at all. They wanted another conversation, more technical information and time to complete their own due diligence before making a decision.

One of our existing clients asked what the maximum level of support we could provide over the next six months would be as their business continues to grow.

Another firm asked whether, once we’d completed the suitability report, we could also take ownership of implementing the advice across every case we worked on.

And one conversation stood out more than any other.

The firm already had an in-house team.

They weren’t looking to replace it.

They wanted experienced technical support around a less experienced team. People they could bounce ideas off, challenge difficult cases with and help develop confidence over time.

When I looked back over the week, something became obvious.

None of those conversations were really about report writing.

They were about confidence.

Ownership.

Consistency.

Experience.

They were about knowing there was someone there when capacity suddenly changed, when a complex case landed on the desk, or when another perspective would help strengthen a recommendation.

That feels like quite a significant shift.

For years, much of the conversation around outsourced support has centred on producing suitability reports.

Can you write the report?

How quickly can you turn it around?

How much does it cost?

Those questions still matter.

But increasingly, I’m hearing different ones.

Can you support our team?

Can you help us improve consistency?

Can you take ownership of implementation?

Can you strengthen our processes?

Can you adapt to the way our business already works?

They’re very different conversations.

And I don’t think many people would argue that technology is going to take more of the repetitive work off our desks over the next few years.

Personally, I think that’s a positive thing.

If technology can reduce the time spent formatting documents, moving information between systems or producing a first draft, it gives us more time to focus on the things that genuinely improve advice.

Technical judgement.

Critical thinking.

Supporting advisers.

Developing less experienced team members.

Improving operational consistency.

Strengthening the evidence behind recommendations.

Maybe that’s where the real value has always been.

For me, the more interesting question isn’t whether technology can produce a document.

It’s whether it can help firms produce better, more consistent advice.

Can it identify missing information before a case progresses?

Can it highlight inconsistencies that might otherwise be missed?

Can it strengthen the evidence behind a recommendation?

Can it give firms greater oversight across every case, rather than just the ones selected for review?

Those feel like much more valuable questions.

And I suspect they’re the conversations we’ll be having far more often over the next few years.

Technology will continue to evolve.

So will the way we all work.

But I don’t believe the future is about replacing people.

I think it’s about giving experienced professionals more time to do the things technology can’t.

To challenge.

To question.

To coach.

To improve.

And ultimately, to help firms deliver better advice.

I’d be really interested to hear your thoughts.

Has technology changed what you expect from suitability support, or has it simply changed where you think the real value now sits?

Further Reading

If you missed the first edition of Behind Better Advice, you can read it here:

Behind Better Advice

If you’d like to learn more about how we support financial planning firms with suitability consulting, annual reviews and operational support, you’ll find more information here:

Services

Why does every advice firm seem to have a different annual review process?

One of the things I enjoy most about my role is seeing how different advice firms operate behind the scenes.

Over the years, we’ve worked with firms of all shapes and sizes. Some have dedicated paraplanning teams. Some have one adviser doing almost everything. Others sit somewhere in the middle.

Recently, I came across a discussion between advisers that asked what sounded like a simple question:

“How do you collect client information before an annual review?”

The replies were fascinating.

Some firms send digital fact finds. Others rely on client portals. Some still post paper forms. Quite a few said they’d stopped asking clients to complete anything beforehand and simply update everything during the meeting instead.

There wasn’t a right answer.

There wasn’t even a common answer.

Everyone had developed a process that worked for their business, their clients and their team.

It made me realise something.

Perhaps the challenge isn’t finding the perfect annual review process.

Perhaps it’s recognising that every advice business is trying to solve a slightly different problem.

Annual reviews aren’t the difficult part

When people talk about annual reviews, they often picture the meeting itself or the suitability report that follows.

In reality, they’re only a small part of the overall process.

Long before an adviser sits down with a client, somebody has contacted them, arranged the meeting, gathered information, updated records, requested valuations and made sure everything is ready.

After the meeting, the work continues.

Recommendations need implementing.

Providers need chasing.

Platforms need updating.

Suitability reports need preparing.

Actions need recording.

Then, while all of that is happening, the day-to-day servicing doesn’t stop.

Client emails still arrive.

Withdrawal requests still need processing.

Addresses change.

Direct debits need amending.

New clients need onboarding.

It isn’t one task that consumes time.

It’s the accumulation of hundreds of smaller ones.

Why every firm looks different

Reading through that discussion, one thing became obvious.

The technology wasn’t really the issue.

Some firms had excellent systems.

Others preferred simpler processes.

Some had embraced automation.

Others deliberately hadn’t.

The common challenge wasn’t software.

It was people.

Clients don’t always complete forms.

Sometimes they don’t understand what’s being asked.

Sometimes they forget.

Sometimes they only remember something important once they’re sitting in front of their adviser.

That’s why there probably isn’t a single “best” annual review process.

Good firms build one that works for their clients, not somebody else’s.

What we’ve learnt

One of the biggest lessons we’ve learnt from working alongside advice firms is that structure matters far more than standardisation.

No two firms operate in exactly the same way.

Some want support preparing annual reviews.

Others want help managing implementation.

Some need somebody to own provider chasing and back-office updates.

Others are looking for support with onboarding, workflow design or simply making better use of their CRM.

Trying to force every business into the same process rarely works.

The best servicing models are built around the business, not the other way round.

Behind Better Advice

Over the coming months, I’ll be sharing a series called Behind Better Advice.

Each edition will look at a real project we’ve worked on (anonymised where appropriate), the operational challenge behind it and the practical lessons we learnt along the way.

Next week we’ll be publishing the first downloadable case study.

It follows a Paradigm member firm that wanted to strengthen the structure behind its annual reviews and ongoing client servicing. Rather than creating a completely new process, we worked together to build a servicing model around the way the business already operated.

I hope it’ll be useful for firms reviewing their own servicing models, whether they’re looking to make small improvements or thinking more broadly about how work flows through the business.

In the meantime, I’d love to hear your thoughts.

If you were designing your annual review process from scratch today, what would you do differently?

Further Reading

If this has got you thinking about how your own annual review process is structured, you can find out more about how we support firms with suitability consulting, annual reviews and ongoing client servicing here:

🔗 Suitability Consulting Support

Next week, we’ll also be publishing the first Behind Better Advice case study, Building a Bespoke Client Servicing Model.

It takes a closer look at how we worked with a Paradigm member firm to design a servicing model around the way they already operated, covering everything from annual reviews and implementation through to workflow design and ongoing client servicing.

I hope you’ll find it useful.

How to Evidence Capacity for Loss in a Suitability Report

Evidencing capacity for loss in a suitability report is not just about saying whether a client is cautious, balanced or adventurous.

It is about explaining what would actually happen if the value of their investment fell.

There is a line we see on advice files more often than you might think:

“The client has a low capacity for loss because they do not like the thought of losing money.”

At first glance, it sounds reasonable.

Most clients do not like the thought of losing money. Some feel genuinely uncomfortable when they see a fall in value on a statement. Some will say they would rather avoid volatility altogether.

But that does not automatically mean they have a low capacity for loss.

It may mean they have a low attitude to risk.

And that is not the same thing.

This is one of those areas that can look fine at first read, but when you look more closely, the file has merged two different points together.

The FCA’s suitability guidance refers to the risk a customer is both willing and able to take. It also describes the assessment as the customer’s ability to absorb falls in the value of their investment, particularly where a loss would have a materially detrimental effect on their standard of living.

That wording matters.

Because this assessment is not about whether the client likes risk.

It is about what would actually happen if the risk became real.

Financial ability vs attitude to risk

In plain English:

Attitude to risk is how the client feels about taking investment risk.

Capacity for loss is whether the client could financially absorb a fall in value.

They are connected, but they are not interchangeable.

A client can have a low attitude to risk but a high capacity for loss.

For example, we might see a client with significant wealth, no debt, guaranteed pension income, and more than enough secure income to meet their day-to-day needs.

They may still be cautious by nature.

They may still hate market volatility.

They may still say they would feel very uncomfortable seeing their portfolio fall.

But if that portfolio fell significantly, would their lifestyle actually be affected?

Would they need to reduce essential spending?

Would they have to change their retirement plans?

Would they be forced to sell investments at the wrong time?

If the answer is no, then their ability to absorb loss may not be low.

Their attitude to risk may be low. Their emotional tolerance for volatility may be low. But financially, they may have more resilience than the file suggests.

That distinction is important when evidencing capacity for loss in suitability reports.

Why this matters in the advice file

From a paraplanning and suitability point of view, the issue is not whether the client ends up in a cautious portfolio.

There may be a perfectly valid reason for the adviser to recommend a cautious approach.

If the client does not want to take more risk, that matters. The recommendation should reflect what is suitable for them, not what they could theoretically afford to do.

But the reasoning needs to be accurate.

If the client has high capacity for loss but low attitude to risk, the file should say that.

It should not say the client cannot afford to take risk if the real reason is that they do not want to.

That small difference can change the whole tone of the suitability report.

Weak wording vs stronger wording

A weak explanation might look like this:

“The client has a low capacity for loss because they are uncomfortable with investment losses.”

The issue here is that it uses the client’s feelings about loss to evidence their financial ability to absorb loss.

A stronger version might be:

“The client has secure income and sufficient assets to absorb a fall in the value of this investment without materially affecting their standard of living. However, their attitude to risk is low, and they have stated they would be uncomfortable with significant volatility. The recommendation has therefore been shaped by their preference for a lower-risk approach, rather than a financial inability to absorb loss.”

That is clearer.

It separates what the client can afford from what the client is willing to accept.

And that is often what is missing.

When willingness to take risk is not enough

The reverse situation can be just as important.

A client may say they are comfortable taking risk. They may have investment experience. They may understand markets. They may even say they are happy to take a long-term view.

But if they are relying on that money for essential retirement income, or if a significant fall would put their plans under pressure, then capacity for loss may be the limiting factor.

In that case, the client’s willingness to take risk does not override their financial ability to withstand it.

The FCA’s more recent retirement income advice findings highlighted this point in a decumulation context. It found that some firms were not revisiting attitude to risk or adequately assessing the client’s ability to absorb loss as clients moved into decumulation. It also said firms should assess capacity for loss and attitude to risk consistently to help identify suitable solutions.

That is where the suitability file needs care, because attitude to risk and financial resilience are pointing in different directions.

Not just:

“What score did the client get?”

But:

“Does the recommendation make sense when their objectives, income needs, assets, expenditure, time horizon and reliance on the money are all considered together?”

Using cashflow modelling to support the assessment

Cashflow modelling can be useful when assessing and evidencing the client’s ability to absorb loss.

It can show whether a fall in value would affect income, spending, sustainability, or the client’s wider financial plan.

The FCA has highlighted good practice examples where firms simulated market falls to understand the impact on clients and the risk of running out of money later in retirement. It has also pointed to the importance of tailoring cashflow modelling to the client’s circumstances and objectives.

But the model is only part of the story.

The suitability report still needs to explain what the result means.

A cashflow that still works after a market fall may support a higher capacity for loss. But if the client would be deeply uncomfortable taking that level of risk, the recommendation still needs to reflect that.

Equally, if the client is comfortable with risk but the cashflow shows their income would be under pressure after a fall, that needs to be addressed.

The point is not to let the tool make the decision.

The point is to use the tool to support better reasoning.

Questions worth asking

When we are preparing or reviewing files, these are the types of questions that help sense-check whether the assessment has been properly evidenced:

• If this investment fell in value, what would actually change for the client?
• Would essential spending still be covered?
• Is the client relying on this money now, soon, or much later?
• Do they have other secure income or assets available?
• Would a fall create a practical problem, or mainly an emotional one?
• Has the client’s position changed since the last review?
• Are we describing their ability to absorb loss, or their feelings about loss?

That last question is often the most revealing.

Because many weak explanations are not really about the client’s financial ability to withstand loss at all.

They are attitude to risk comments wearing a different label.

FAQ: capacity for loss in suitability reports

What is capacity for loss?

Capacity for loss is the client’s financial ability to absorb a fall in investment value without it materially affecting their standard of living, income needs, or financial plans.

Is capacity for loss the same as attitude to risk?

No. Attitude to risk is about how the client feels about investment risk. Capacity for loss is about what would happen financially if the investment fell in value.

Can a cautious client have a high capacity for loss?

Yes. A client may dislike risk but still have enough secure income, assets, and financial resilience to absorb investment losses.

Can a confident client have a low capacity for loss?

Yes. A client may be willing to take risk, but if they rely on the money for essential income or near-term objectives, their capacity for loss may be limited.

How should capacity for loss be evidenced in a suitability report?

Capacity for loss should be linked to the client’s actual circumstances, including income, expenditure, assets, liabilities, time horizon, objectives, reliance on the money, and what a fall in value would mean in practice.

A brief explanation may be enough in the suitability report, as long as a more in-depth assessment is evidenced on file.

The practical point

For me, the biggest risk is not that firms forget to mention capacity for loss.

It is that they mention it, but do not quite evidence the right thing.

A client’s attitude to risk tells us how they feel about taking risk.

Their capacity for loss tells us what would happen if the risk became real.

Both matter. But they answer different questions.

And when the two point in different directions, that is where the file needs the most care.

A cautious client may still have high capacity for loss.

A confident client may still have low capacity for loss.

It is worth checking the wording before it becomes a suitability issue.

If this feels familiar, or if you are seeing the same thing come up in files and reviews, it may be worth taking a closer look at how this is being evidenced across your advice process.

At We Complement, we support advice firms with suitability report writing, file reviews and suitability consulting, helping make sure the reasoning behind recommendations is clear, consistent and properly evidenced.

For firms that need wider support with advice files, research and reports, our outsourced paraplanning support can also help bring more consistency to the process.

It’s not surprising that there’s a lot of confusion about suitability reports. Once you know where to look in the FCA Handbook, the FCA’s requirements for suitability reports are, in reality, relatively concise. Yet over time, reports have grown far longer and more complex – less as a result of direct regulatory demand, and more through layers of industry interpretation and a collective desire to ‘play it safe’. Throw in the influence of Financial Ombudsman Service decisions and their implications for suitability reports, and things start to feel quite complicated.

This can lead to 60-page suitability reports, including everything from the client’s personal circumstances, to critical yield information, to output from your pension switch comparison software of choice.

On the surface, this approach might feel like it’s reducing the risk of being called out by the FCA or a file checker – but in reality, it can leave the client swamped by information and unsure of what they’re actually agreeing to. It also means that the paraplanner’s focus is split across so many areas that the really crucial bits – the parts the FCA say must be included in a suitability report – don’t receive the attention they deserve, and can be treated as an afterthought rather than one of the main building blocks of a good suitability report.

This blog gets back to basics, with a focus on what definitely needs to be included in a suitability report. These are the areas that can make or break a good (and FCA compliant) suitability report.

Suitability Report Essentials – According to the FCA

In COBS 9.4, the FCA states that a suitability report must:

• Confirm the client’s demands and needs (i.e. their objectives)

• Explain why the recommendation is suitable for the client

• Explain any possible disadvantages of the recommendation

This has been extended slightly for MiFID business in COBS 9A.3.3, but mainly covers the points above. It also adds that the suitability report must:

• Include information on whether the recommendation is likely to require the client to seek a regular review

COBS9A.3.4 then goes on to remind us to ensure that the report is ‘clear, fair and not misleading’.

For pension recommendations, there are two other points to consider: stakeholder pensions and workplace pensions.

This can be quite hard to believe when you’re used to working with very long suitability reports, but that is a summary of what the FCA rules say must be in a suitability report. I believe that much of the extra material that has become standard in many suitability reports has come from the ‘assessing suitability’ section of COBS, which covers the research needed on file – but not necessarily in the report.

Assessing Suitability

This is covered by COBS 9.2 and COBS9A.2, and for most firms with a robust fact finding and information gathering process, this section should be covered by your files – so there is no need to put this information in the report. A part that’s worth looking at more closely in the context of suitability reports is the guidance on replacement business (covered by COBS 9A.2.18 & COBS 9A.2.18A).

This section covers the FCA’s guidance on the comparisons that need to be done when recommending a client switches to a new provider. This is for the file and does not necessarily need to go into the suitability report unless it helps the client understand something, helps explain why the recommendation meets their objectives, or is linked to a disadvantage.

The FCA leaves it to you to decide which comparisons you actually do, and they don’t say it needs to go into the report. Their guidance states that “a firm must collect the necessary information on the client’s existing investments and the recommended new investments and undertake an analysis of the costs and benefits of the switch, such that they are reasonably able to demonstrate that the benefits of switching are greater than the costs.” Notably, this doesn’t just mean a numerical comparison of charges – it includes other non-numerical costs or benefits that might be relevant to the client, such as the flexibility on offer, the investments available, or other ways the plan might help the client achieve their objectives.

Consumer Duty

The existing ‘clear, fair and not misleading’ guidance was taken to another level by Consumer Duty, with its ‘Consumer Understanding’ outcome, and is detailed in ‘PRIN 2A.5 Consumer Duty: retail customer outcome on consumer understanding’. This part of the Handbook states that you must “provide relevant information with an appropriate level of detail, to avoid providing too much information such that it may prevent retail customers from making effective decisions.”

Take a critical look at your suitability report templates and whether they’re helping clients make informed decisions. If you’ve got feedback from clients that they don’t read them, this is a red flag that they could be too long or difficult to understand.

This is also echoed by the way the FOS assess complaints. Lack of client understanding or things not being clear are common themes.

Conclusion

Ultimately, a good suitability report is about clearly explaining to the client what you are recommending, why it meets their objectives, and what the potential downsides are.

There will always be a place for detailed analysis, comparisons and supporting evidence – but much of this belongs on file, not in front of the client. By focusing on what the FCA actually requires, and using judgement about what genuinely helps the client understand the recommendation, firms can produce reports that are both compliant and meaningful.

In many cases, less really can be more.

Research & Due Diligence for Financial Advisers

We provide investment research and due diligence support for financial advisers, helping firms build clear, evidence-based frameworks that strengthen their advice process and support good client outcomes.

Our work sits at the core of your advice proposition, ensuring your Central Investment Proposition (CIP), Central Retirement Proposition (CRP), platform selection and portfolio approach are clearly defined, consistently applied and fully aligned to regulatory expectations.

Investment Research and Due Diligence Approach

We support firms in creating and maintaining a robust, well-documented approach to investment research and due diligence. This includes defining how products, platforms and portfolios are selected, assessed and reviewed, ensuring your advice process is both repeatable and defensible.

Our approach provides clarity and consistency across your firm, giving advisers confidence that recommendations are supported by a structured and well-governed framework.

What We Support

• Central Investment Proposition (CIP) creation and review
• Central Retirement Proposition (CRP) development
• Platform due diligence and comparison
• Portfolio and DFM research
• Target market and client segmentation
• Value for money assessments
• Ongoing monitoring and governance frameworks

Aligned to Consumer Duty and PROD

Our research and due diligence work is designed to support financial advisers in evidencing good client outcomes in line with Consumer Duty and PROD requirements.

We help you demonstrate that your propositions are designed with a clear target market, deliver fair value and are supported by appropriate governance and oversight across your advice process.

Supporting Your Investment & Advice Framework

We work closely with firms to ensure their investment philosophy and advice framework are clearly defined and consistently applied. This includes evidencing your approach to platform selection, investment strategy, ESG considerations and the use of in-house or outsourced investment solutions.

Our goal is to ensure your documentation reflects how your firm actually operates, creating a practical framework that supports advisers in delivering consistent, high-quality advice.

Independent Research & Evidence

All recommendations and frameworks are supported by structured, independent investment research and due diligence. We use recognised research tools and methodologies to ensure your propositions are robust, evidence-based and aligned to current market conditions.

This provides a clear audit trail and strengthens your ability to demonstrate the rationale behind your advice process.

Value for Money & Ongoing Oversight

Value for money is a key component of our research and due diligence process. We support firms in assessing whether platforms, portfolios and investment solutions remain appropriate for their target market and continue to deliver fair value over time.

We also help establish ongoing review and monitoring processes, ensuring your proposition evolves in line with market changes, regulatory expectations and client needs.

Why Financial Advisers Choose Us

Financial advisers choose our research and due diligence support because we combine technical expertise with a practical understanding of how advice businesses operate. We create documentation and frameworks that are clear, usable and tailored to your firm.

Rather than generic templates, our work reflects your processes, philosophy and client base, helping you maintain consistency while retaining flexibility in how you deliver advice.

Connected Advice Support

Our research and due diligence service forms part of our wider support for financial advisers, working alongside paraplanning, suitability report writing and operational support to strengthen your overall advice process.

• Outsourced paraplanning services
• Suitability report writing services
• Suitability consulting and support

If you are looking to strengthen your investment research and due diligence approach, we provide the structure, clarity and expertise to support long-term, consistent advice delivery.

Outsourcing has quietly become normal in financial planning.

Paraplanning, administration, compliance support, portfolio management. Lots of firms now rely on specialist partners across different parts of the advice process.

And to be clear, that can work brilliantly.

Running an advice business today means juggling client work, regulation and a lot of operational pressure. Having people who specialise in certain parts of the process can make firms more efficient and often improve the quality of the work.

But it does raise a question firms are starting to think about more carefully.

If parts of the advice process sit outside the firm, how confident are we about the governance around those stages of the work?

Suitability is rarely one step

Suitability isn’t one task.

It’s the end result of a chain of work that happens behind the scenes.

Factfinding. Research. Analysis. Suitability report drafting. Compliance review.

Each step feeds into the final recommendation that goes to the client.

Increasingly, parts of that chain might involve external partners. A paraplanner working remotely. A compliance team reviewing files. Portfolio management sitting elsewhere.

None of that is necessarily a problem. In many cases it improves efficiency and brings in expertise.

But it does mean the advice process is often more spread out than it used to be.

Responsibility still sits with the firm

The FCA has always been very clear on outsourcing.

Firms can outsource activities. They cannot outsource responsibility.

If a third party is involved in the advice process, the firm is still accountable for the oversight of that relationship.

And when you think about the type of information involved in suitability work, that matters.

Advice files contain some of the most sensitive information in a client’s financial life. Fact finds reveal personal circumstances. Platform data shows investment holdings. Suitability reports document complex financial decisions.

If those files move through different systems or organisations along the way, firms need confidence that the same standards apply throughout.

The operational side of suitability

Historically, most conversations about suitability focus on the recommendation itself.

Was the advice appropriate? Was the research robust? Does the report explain the reasoning clearly?

All important questions.

But suitability is also supported by the operational process behind the scenes.

How information is handled. How files move between people. Who can access them. What controls sit around that process.

Good governance behind the scenes helps make sure the final recommendation rests on a process that is consistent and reliable.

Practical checks firms can make

For firms that rely on outsourced support, the real question isn’t whether outsourcing is right or wrong. In many cases it’s simply how modern advice firms operate.

The more useful question is whether the right checks sit behind those relationships.

A few areas are worth paying attention to.

Information security

Advice files contain highly sensitive personal and financial data. Firms should understand how providers store, transfer and protect that information, and whether recognised frameworks such as ISO 27001 are in place.

Operational resilience

If systems fail or a provider experiences disruption, how quickly can normal service resume? Providers should have clear processes for continuity and recovery.

Governance and oversight

External partners should operate with clear processes and documented controls. Firms should be able to demonstrate that they have assessed those arrangements properly.

None of this is about adding bureaucracy for the sake of it. It’s about making sure the advice process works safely and consistently.

Suitability depends on the whole process

Encouragingly, governance standards across the profession are improving.

More firms are taking a structured approach to assessing the organisations involved in their advice process. Compliance teams and boards are asking better questions about operational resilience, data protection and governance frameworks.

That reflects a broader shift in the profession.

Suitability isn’t just about the recommendation at the end of the process.

It depends on the strength of everything that sits behind it.

And as the advice supply chain expands, those foundations become more important than ever.

Because while parts of the advice process may be outsourced, responsibility never is.