Are you feeling MiFID? (Part Two)

Part 2: Periodic suitability – the ‘what’s’ and ‘when’s’ (COBS)!

My previous post touched upon personal recommendations and information to be issued to the client post MiFID. This then brings us onto the next important MiFID rule which will affect clients; Periodic Suitability. The ^ ‘whats’ and ‘whens’ may help you consider whether your firm is adhering to the new rules.

WHAT is periodic suitability or periodic assessments?

COBS 9A.3.6 R 03/01/2018

A firm must, in good time before it provides its investment advice, inform the client whether it will provide the client with a periodic assessment of the suitability of the financial instruments recommended to the client.

COBS 9A.3.8 EU 03/01/2018

52(5) Investments firms providing a periodic assessment of the suitability of the recommendations provided pursuant to Article 54(12) shall disclose all of the following:

(a) the frequency and extent of the periodic suitability assessment and where relevant, the conditions that trigger that assessment;

(b) the extent to which the information previously collected will be subject to reassessment; and

(c) the way in which an updated recommendation will be communicated to the client.

This means that an Adviser must formally agree with the client an ongoing service and inform them that they will be providing a ‘periodic assessment’ of suitability, in other words, a review. This will be confirmed initially in a letter and/or signed service proposition when either transferring an agency or recommending a new product. As above, the letter and client agreement must state how often the reviews will take place, what it will cover and what the client will receive with the updated recommendation i.e. review or new recommendation letter.

With this in mind, when did you last review your client facing documentation such as your client agreement and service proposition? Have these been updated post-MiFID? Does it detail what a client receives and when for each service proposition? If changes have been made to your ongoing review service has this been changed internally? Do you have a review process to ensure all staff know what is required from them? Does this review process detail what is analysed before the review i.e. ATR and their investments etc. Does it also detail what occurs during a review and what is required afterwards? Do you have the back office staff in place to ensure that keep these are up to date, for instance who diarises the reviews? Do you also have the systems and tools in place to make the process more efficient and allow MI to be recorded for management?  There are many more questions to be posed to ensure that your review process works effectively and compliantly.

WHEN does it need to be issued and WHAT need to be issued?

COBS 9A.3.9EU03/01/2018

54(13) Investment firms providing a periodic suitability assessment shall review, in order to enhance the service, the suitability of the recommendations given at least annually. The frequency of this assessment shall be increased depending on the risk profile of the client and the type of financial instruments recommended.

Therefore as I mentioned earlier, and as per the service proposition agreed with the client, a review must be done at least annually to ensure that the recommendations fit with the client circumstances. A confirmation of the review will be in the form of a suitability letter. These must follow the suitability assessment rules also so they must be issued if the advice is to buy, sell or hold as discussed in my previous blog (see the blog page for Part 1). These letters could consist of a confirmation that their circumstances are the same, the recommendations are still suitable there is no action needed or… confirmation that their circumstances have changed slightly but the recommendation is still suitable or… their circumstances have changed and the product is no longer suitable. There are other scenarios I am sure, however these would be the main three letters sent out post review. So has your firm created suitable templates to ensure that all Advisers are following the consistent format and covering everything that is needed to evidence suitability? As part of the review process, who produces these letters before they are sent out? Is there a compliance check done on the review letters? Who manages the letters to ensure they go out in a timely manner as per the process and to ensure no internal breaches?

Again, as you can see there are many questions to be posed in relation to MiFID and as recommended before, you should always seek expert compliance advice to ensure you are meeting your regulatory duties. *cough cough*