The UK's financial watchdog is proposing a significant overhaul that could liberate wealth managers from the rigid requirement of conducting annual reviews for all clients. The move forms part of a broader push to ensure financial advice truly centres on client needs, rather than bureaucratic box-ticking.
Shifting from Prescriptive Rules to Principles
The Financial Conduct Authority (FCA) has launched a consultation on streamlining its core rulebook, known as the Conduct of Business Sourcebook (COBS). A key focus is the rule mandating firms to provide a suitability report "at least annually" to clients with ongoing advice arrangements. The regulator now suggests this prescriptive requirement may be redundant under the higher standards of its flagship Consumer Duty, which came into force last July.
Under the Consumer Duty, firms must already act to deliver good outcomes for retail customers and provide support that meets their needs. The FCA argues that maintaining a separate, rigid rule for annual reviews could create confusion and potentially lead to mechanical, low-value communications that do not benefit the client. Instead, the frequency and nature of contact should be determined by what is genuinely in the client's best interest.
Industry Reaction and Practical Implications
The proposal has been welcomed by sector representatives. Bim Hundal, head of wealth management at KPMG UK, stated that the annual review had often become a "tick-box exercise" and that the Consumer Duty provides a better framework for meaningful client engagement. Similarly, David McFie, managing director at consultancy Threesixty, noted the change would allow firms to align contact strategies with individual client circumstances, potentially reducing unnecessary costs.
However, the FCA is not advocating for less communication. The consultation paper, published on 22 April 2024, emphasises that for many clients, annual contact will remain appropriate. The shift is about moving away from a one-size-fits-all mandate. Firms will need to clearly evidence how their communication strategy fulfils the Consumer Duty's principles of seeking good customer outcomes.
The Path Forward and Regulatory Alignment
This consultation is part of the FCA's "Smarter Regulatory Framework" programme, designed to tailor inherited EU financial laws for the UK market. The proposed changes aim to reduce duplication and ensure rules are "clear, simple and up-to-date". The consultation period closes on 17 June 2024.
For the wealth management industry, the potential removal of the compulsory annual review represents a significant cultural shift. It places greater responsibility on firms to design and justify their client engagement models, moving from compliance-driven reporting to outcome-focused advice. Success will hinge on robust governance and a deep understanding of diverse client needs, ensuring that the spirit of the Consumer Duty is embedded in every client relationship.
