The FCA has published Thematic Review 16/1: Assessing suitability: Research and due diligence of products and services (TR16/1).
In TR16/1 the FCA set out high level findings following a thematic review of the research and due diligence processes carried out by advisory firms on the products and services they recommend to retail clients. In particular this included, for example, exploring how:
- firms selected products, funds, platforms and discretionary investment management services;
- created panels and centralised investment propositions; and
- considered options for individual clients.
In the main the FCA found that firms sought to achieve positive outcomes for their clients when undertaking research and due diligence, and generally firms demonstrated some good practice in this area. However, many firms did not show consistently good practice across all products and services. The poor practice the FCA identified varied from issues that are easily addressed to those that are more significant. The FCA is particularly disappointed to identify issues relating to platform research and due diligence, particularly as it has previously published its expectations around this topic.
Other key findings included that:
- the culture of a firm was important to the success of its research and due diligence process. Firms that demonstrated good practice had research and due diligence as a central function of the advice process. This demonstrated that they had the client’s best interests at heart and put this into practice; and
- a key driver of good research and due diligence was a corporate culture of challenge. The better firms had either in-built challenge in the process and/or individuals who were knowledgeable, enthusiastic and challenged the firm’s approach.
The FCA states that it will be publishing a second consultation paper on the implementation of MiFID II later this year and that it anticipates that this will include requirements in relation to research on products.
The FCA also states that it will provide firms with further communications that set out its expectations in this area in further detail, to help them raise standards and adopt good practices. The FCA is considering a range of options for the best way to do this.
View TR16/1: Assessing suitability: Research and due diligence of products and services, 19 February 2016