UK: FCA launches Investment Advice Assessment Tool

Why should I read this?

• The FCA has introduced the IAAT, an Excel-based framework designed to assist firms in evaluating the suitability of their advice[1], the adequacy of client disclosures, and compliance with Principle 12 and the Consumer Duty[2]. Firms can access the tool here IAAT and the instructions for use here instructions.
• Although the FCA describes the tool as guidance, it incorporates the IAAT into its supervision of firms and potential enforcement. This implies that the IAAT represents the standards the FCA expects firms to meet when assessing the suitability of advice, the quality of disclosures provided to consumers, and compliance with obligations under Principle 12 and the Consumer Duty.
• Firms that do not implement the IAAT into their practices or adhere to its standards may encounter challenges in justifying their advice in the event of a complaint or FCA investigation.

What should I do now?

• Review and align with IAAT Standards: Firms should review the IAAT tool to strategically evaluate their advice and disclosures, ensuring they align with the required standards and satisfy Principle 12 and the Consumer Duty. If they do not, firms should amend their processes, systems, and controls to meet the outcome-focused standards.
• Ensure full and complete information gathering: Firms must ensure that all relevant information is gathered and documented, forming the basis for the advice given. If there is a material information gap, firms should obtain this before providing advice. This is a consistent area where firms can let themselves down, particularly in on going relationships with clients where there is a failure to update changes in circumstances.
• Embed IAAT into complaint handling and past business reviews practices: Firms should integrate the IAAT tool, or its standards, into their complaint handling and past business review processes. The FCA expects firms to use the IAAT tool to assess the suitability of advice and the extent of disclosures when considering complaints about past advice or conducting past business reviews. If failures are identified or documents are absent, firms should proactively consider offering redress where the advice is deemed to be unsuitable.
• Anticipate FOS adoption of the principles of IAAT: Although not publicised, the Financial Ombudsman Service (“FOS”) may adopt this tool, or aspects of it, when considering investment advice based complaints in line with its obligation to take into account relevant regulators rules, guidance and standards. The FOS may also critically analyse whether the firms have completed the IAAT correctly, as the FOS has with some decisions relating to pensions and firms’ completion of the defined benefit advice assessment tool. Firms should evaluate whether they have satisfied the IAAT requirements in the context of ongoing and new FOS complaints and, if not, consider whether it can justify this to the FOS.
• Prepare for CMC activity: We anticipate Claims Management Companies (“CMCs”) using aspects of the tool when considering complaints and claims on behalf of their clients, leveraging any gaps as a basis for a complaint or claim against a firm. If such complaints are received, firms should consider whether the claim is properly made out. While a gap in the IAAT could give rise to a regulatory failing, it does not always follow that this has caused loss or detriment or gives rise to a legal basis for a claim against the firm.

What else do I need to know about the FCA’s IAAT?

• Firms can use the IAAT to assess the suitability of their investment advice and the adequacy of client disclosures for advice given after 3 January 2018, as well as compliance with the Consumer Duty from when it came into force on 1 August 2023.
• The tool should not be used for the consideration of retirement income or defined benefit transfer advice, for which there are separate tools.

[1]  For advice after 3 January 2018

[2]   For advice after 31 July 2023 for products and services on sale or available for renewal on or after this date, and effective from 31 July 2024 for products and services that are no longer on sale or available for renewal on or after this date.