A review published Monday, titled Investment and Long Term Insurance Sales Practice, highlighted a range of concerns.
Among them, the Guernsey Financial Services Commission (GFSC) said it was “surprised” to find 30% of advisers do not gather any management information that could identify churning and/or switching.
The GFSC said it is unclear how these firms would be able to identify the potential for either the abuse of clients by a financial adviser or client wrongdoing without this information.
“We were surprised that not all [review] respondents gather this management information,” GFSC said.
Boards should look for churn abuse
Where churning and/or switching is possible, good practice would be to undertake regular checks as part of a compliance monitoring programme that mitigates this risk, the regulator said.
The GFSC encouraged all firms to assess if their policies and procedures in relation to churning and/or switching are adequate. In particular, boards should look at the potential for abuse and ensure adequate controls exist.
The review also found 24% of respondents were not providing clients with details of the benefits they were losing when a product was switched.
Unclear files
During on site visits, the regulator “dissapointingly” found that the majority of advice recorded on client files was “unclear”.
There were three key and recurring reasons for this, GFSC said.
In these ‘unclear files’ capacity for loss was not often explained adequately or not considered at all in a recommendation. Regulators found it too often confused with risk tolerance.
Capacity for loss was previously highlighted in the 2013 GFSC thematic review and, as a result, additional requirements were introduced in 2015.
Another recurring error was clarity around fees, which was another issue picked up in 2013.
While all firms provided fees, costs and remuneration in written advice the GFSC called for greater clarity on how the payment of fees and remuneration operated – echoing the UK FCA’s own review findings.
Attitude to risk was a third recurring breakdown in the advice process leading to an unclear file. The Guernsey regulator found inconsistent terminology and an over-reliance on tools without further steps to check on its accuracy.
Progress
While acknowledging progress, the GFSC said further progress was required and said its Conduct Unit would be hosting workshops for financial advisers and compliance officers on the island focussed on the review’s findings.
