Don't Cut Corners; Just Don't!

22nd June 2022 Adam George

We've all been faced with challenging tasks at busy times, and it's human nature to look for optimisations and shortcuts to save time and alleviate the burden of the task at hand.

Ordinarily, this is a great trait to have. It's how we innovate and how we steadily make improvements to processes. However, if not done diligently, the steps we take to gain efficiency can actually have negative effects in the longer term and compromise quality.

Here are just a few common examples of situations when financial planning professionals may be tempted to take shortcuts, but really shouldn't!

Adding an Extra Plan to a Suitability Report

One such example is adding to a suitability report. Let's say you've done a transfer of 5 pensions to consolidate onto a platform and then a month later the client reveals an old GPP that they'd like to consolidate too.

The temptation is just to open the old report, slot in the extra existing plan, append it to the charges table, update the adviser remuneration sections and mark it off as done. After all, the advice for the other plans is not changing and the recommended plan is staying the same, so the rest of the report will be fine, won't it?

Well, maybe, but probably not. Consider the following potential implications:

  • Adding the extra plan will increase the total transfer value, which means any comparison amounts based on the transfer value would be too low.
  • If the extra plan has regular contributions, any references to regulars continuing/ceasing in the old report may no longer be accurate. Similarly, if regulars are not mentioned in the original then the advice may be incomplete.
  • Transferring more onto the new platform may affect the new platform charges and reduce the reduction in yield, so all tables and in-paragraph references to this will be wrong.
  • The increase in transfer value will need to be reflected in the projections to NRD.
  • Discovery of the extra plan may affect the likelihood that the client breaches the LTA, so any assumptions made about this will need reviewing.
  • The client may, having discovered this new pension fund, be looking to retire earlier or take retirement benefits in a different way. Not updating the objectives and "soft facts" may lead to inaccuracies or inconsistencies in the report.

Any of the above can make the updated report non-compliant and put you at risk of a regulatory breach. You may have saved time in the short term by quickly slotting in the new plan, but is it really worth putting the firm at risk? It may sound extreme, but the only safe way is to rewrite your suitability report in full whenever you're changing the scope of the advice.

Data Gathering for Taxable Investments

Perhaps less common than the above, but equally risky, is the temptation to make assumptions when determining taxation consequences of investments.

Let's suppose you have an onshore bond that you're looking to encash to put towards ISA and pension contributions. After much difficulty chasing the provider, you've been given some limited information, such as the bond start date and initial investment amount, along with an up-to-date fund/surrender value and confirmation that there's currently no regular income.

Based on this, it may be tempting to think that you have enough to compute the taxation consequences of surrendering the bond. After all, the provider's been hard work up until now, so you're understandably reluctant to go back and ask for yet more information.

However, while there may be no current income being taken, making the assumption that this has always been the case could be a critical oversight.

The presence of historical withdrawals would affect the gains on the bond, and failing to obtain this information from the provider could result in giving advice that lands the client with a big tax bill, despite your calculations in the report indicating that no tax liability was expected from following the advice to surrender the bond. Ultimately, that choice to save time by not going back to the provider has resulted in a very unhappy client lodging a complaint!

Completing the Fact Find

At PowerPlanner, we see all sort of fact finds, ranging from the complete and comprehensive to notes on the back of a metaphorical fag packet. We've even been given things like "ATR not done - assume 7/10 risk" in the past when asked to produce suitability reports!

There is no FCA definition of "enough" when it comes to documenting your clients' details, but cutting corners in this regard can compromise your compliance and hinder your ability to deliver a good service.

When taking on a new client, it's an unavoidable requirement to assess the ongoing suitability of the advice. That means that, even if the client just pays for a transactional service, you still need to be able to ascertain whether the advice given remains suitable as time goes by and circumstances change.

Without a properly organised fact find, this is all but impossible. You might give the client what he/she wants in the beginning, but when the annual review comes around you have no way of knowing about the client's health & lifestyle, assets and liabilities, dependants, retirement goals etc. Your only hope of recovering this information is trawling through emails in the hope that you can piece together some context - a nightmare job necessitated by the failure to spend a few minutes documenting the client facts properly.

Not only this, but if there's a file review or compliance check and the fact find is incomplete, it goes without saying that there'll be question marks over the advice at best, and, at worst, the possibility of upheld complaints and disciplinary action.

This doesn't necessarily mean that you have to fork out for the best back office software and fill in every field. However, you do need to record clear, measurable objectives and have a documented understanding of your clients' personal and financial circumstances.

Summary

There'll doubtless be many other situations in which corner cutting will be tempting to get quick wins, but you should always be wary of the consequences and listen to the proverbial alarm bells. In a regulated industry such as ours, it's seldom worth the risk of cutting corners; just don't do it!

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