Suitability—one of the mainstays of customer protection. Considering the increasing expectations for better protection and the assortment of wealth management products, wealth managers view suitability as a pressing issue. Wealth firms are still unsure if their investment portfolios accurately reflect the appetite and requirements for risk of its customers. They are falling short—and here and 3 reasons why.

Complexity and a Lack of Clarity

Despite the fact that suitability issues have been present for a while, wealth firms are still unable to get to grips with it. One of the primary reasons why suitability is an underlying issue is because firms struggle to understand requirements. FCA’s (Financial Conduct Authority) suitability review shows that there is variation between one firm to another in the standards followed and a significant variation in the time that these institutions spend reviewing portfolios.

Additionally, institutions lack clarity of regulations and expectations. This results in complexity, confusion, and ultimately increases the risk of wealth managers providing unsuitable advice. Another area of deficiency is failure to update client information regularly. This creates a risk of inconsistency between portfolios and customers risk appetite—resulting in unsuitable portfolios.

Limited Use of Technology

Based on Compeer’s annual compliance survey with fintech company, JHC—Amir Hakim, Head of Wealth Solutions at JHC, says “a huge chunk of the industry still isn’t utilising technology”—technology can be an inexpensive, quick to implement solution for suitability and will be of great advantage to wealth managers.

The variation in time spent reviewing portfolios, as mentioned above is also based on the sophistication of a financial institutions’ IT infrastructure. Surely, new technologies create a host of new challenges but sometimes, the simplest solutions are the best. The bottom line is to ensure that decision-making processes are centred on understanding customer needs and to put customers at the heart of your services to get a step ahead on suitability.

Lack of Governance

Wealth firms need to ensure that their governance and monitoring meet regulatory standards of suitability. Their portfolios must truly reflect the risk appetite and investment needs of their customers—especially those who do not wish to expose themselves to risks.

The clock is ticking, it is time for firms to ensure their suitability schemes are fit for purpose and that they are well-versed with regulatory expectations. Suitability is a topic of current interest and needs to be at the heart of digitisation efforts.

Free Download: Suitability Kit

Suitability - one of the cornerstones of customer protection. With increasing expectations for better protection and assortment of wealth management products, wealth managers view suitability as a pressing issue.

Find out the five pillars of a suitability framework that's effective, and how we can help you get ahead in this FREE downloadable Suitability Kit.