I have decided to write a film script. It will be the tale of a woman who takes her boyfriend home to meet her parents for the very first time. The ‘twist’ will be that the boyfriend and the parents are complete opposites. In fact, the parents hate the boyfriend because he’s so completely different to what they would like for their daughter. A comedy of bad manners and inappropriateness will ensue, but by the end of the film common ground will be found and each side will have a forged a grudging respect for the other.
It doesn’t worry me that this film is highly derivative. It may have been done a million times before – Meet The Parents, Guess Who, anything in which Steve Martin plays a dad – but this hasn’t stopped film-makers from repeatedly churning out more of the ‘Mr Unsuitable’ genre.
Most parents, I would imagine, feel no one could possibly be good enough or even suitable for their child. Indeed, might I suggest that anyone thinking of taking a new partner home to meet their parents take inspiration from financial advisers and draw up a suitability letter detailing the reasons why the new man/woman in their life is the right person for them.
Not a formal requirement
Of course, it is perhaps one of the great mysteries of mortgage regulation that a suitability letter is not a formal requirement for mortgage intermediaries as it is for financial advisers advising in the life, pensions and investment sectors. At the time of consultation on the mortgage rules, the Financial Services Authority (FSA) stressed that, in this particular instance, it was a ‘light-touch’ regulator. It didn’t want to add to the costs of regulation and therefore it would be entirely up to firms if they wanted to issue such a letter to their clients.
AMI has always been of the opinion that mortgage intermediary firms should draw up and hand clients a suitability letter. We continue to stress to members that this is good business practice and our recent research suggests a large majority of members have taken this advice on board and provide clients with a suitability letter when a recommendation is made. Our Intermediary Census revealed 86 per cent of members said they ‘always’ provide one, 4 per cent said they ‘usually’ issue a letter, 7 per cent said they ‘sometimes’ do, and only 3 per cent said they ‘never’ hand over a letter.
This is reassuring but AMI would still be keen for all those firms who ‘usually’, ‘sometimes’ or ‘never’ to convert to ‘always’ and issue specific suitability letters to clients. While they may not be a regulatory requirement, the FSA continually refers to the provision of such letters as an example of good practice. In its recent thematic reviews it has drawn attention to those firms who do issue such letters, and an easily digestible, plain English document would certainly seem to go some way towards the implementation of the ‘Treating Customers Fairly’ (TCF) initiative within a firm. The FSA has conducted research on consumers’ understanding of, not only the service they have received, but also the reasons why a specific product was recommended. Those customers who have received such a letter seem to have shown a heightened understanding of the reasons for the advisers’ recommendation and client knowledge and client satisfaction would seem to go hand in hand.
Tailoring to individual circumstances
Some firms have chosen to use standard paragraphs for their suitability letters and this is perfectly fine, but the FSA has commented that letters should be tailored to the individual client’s circumstances. Therefore, use of standard paragraphs must be supplemented with information relating to your client’s circumstances and the specific ‘reasons why’ the product was recommended. Suitability letters are good business practice but they must contain correct client-specific information. It would be better for a firm not to issue a suitability letter rather than one which was incorrect.
Of course, suitability letters are not just of benefit for the client, they can also be of benefit for intermediaries themselves. In my last column, I reviewed the latest issue of the Ombudsman News, which outlined a number of case studies of complaints against intermediaries. While the numbers of complaints against brokers is a very small proportion of the total number received by the Financial Ombudsman Service (FOS), it has already stated that the number is growing. Firms, therefore, need to ensure they have compliant client records and can prove why a particular mortgage was recommended to a particular client. A suitability letter can be a vital evidential tool in providing this proof. And should the client complain to the Ombudsman, you will be able to use the letter as evidence in your case.
There is much to be gained from the issue of suitability letters. Many advisers are wary of bombarding their clients with even more information, especially a document not required by the FSA, but in this instance we feel the benefits far outweigh any negatives. So while your son or daughter’s partner might not always be suitable, your mortgage recommendation will be, and you’ll have issued a letter to prove it.
