INVESTMENT
SUITABILITY REPORT TEMPLATE
This sample ‘suitability wording’ contains detailed information about the investment options fromRoyal London and has been designed to assist you in formulating your own client suitability report. IfyouneedmorespecificinformationforyourreportaboutRoyalLondon,we’vealsocreatedthe Key messages foryour suitability report template.
It’simportantthatwithinyoursuitabilityreportyou clearlyexplaintoyourclientwhyyou’rerecommendingyourproposalandhowitmeetstheirfinancialgoalsandobjectives.WithintheFCA’sguidanceaboutsuitabilityreports,theyalsomentionhowthereportshould:
•provide a balanced view,
•detailthecostsandchargesinvolvedand,
•highlightanypotentialpenalties thatmaybelinkedtoyourrecommendation.
Ifyourclientisalreadysavingfortheirretirement,butaspartofyourproposalyou’rerecommendingtheycanceltheirexistingplanandtransfer theirbenefitstoanewplanwithRoyalLondon,inadditiontoprovidingalikeforlikecomparison,theFCAwillalsobecheckingtomakesurethatgoodandappropriateadvicehasbeen provided.Tohelpwithyouradviceprocess,we’vehighlightedbelowthefollowingpointswhichyou’llneedto take into account when producing your suitabilityreports.We’vealsoincludedsomeofthepointshighlightedbytheFCAintheir2008/2009Thematicreview:
•Knowing your client – finding out what their financial needs and objectives are.
•Analysingtheirexistingarrangements–reviewingtheirexistingarrangementsandidentifyinganyshortfalls.
•Researchingnewplans–identifyingsuitablenewplansandtheirbenefits.
•Identifyingsuitableinvestmentoptions–identifying theirsuggestedattitudetoriskandrecommendingsuitableinvestmentoptions.
•Carrying out regular reviews – regularly reviewing their circumstances and ensuring their investment options remain suitable.
It’simportantthatyouproduce yoursuitabilityreportinlinewithyour owncompliancerequirementsandthatifyou’readvisinganyclienttotransfertheirexistingplantoanewprovider,thatyou’reauthorisedtodoso,it’sin theirbestinterestsanditmeetstheFCArules.
Royal London[withGoverned Portfolios/Target or Flexible Lifestyle Strategy/External Investment Options/Governed Retirement Income Portfolios/Custom]suitabilityreportpreparedfor[Nameofclient]
The contents of this report and the recommendation was provided by (Insert name and address of financial adviser)
Dateofinitialmeeting Dateoffollowupmeeting Dateofsuitabilityreport
Dateserviceagreement
signed
(Insert date)(Insert date)(Insert date)
(Insert date)
- ASSET TYPES EXPLAINED
Royal London haveover 160 funds to choose from andsome of our investmentoptions hold a mix of assets,suchas companyshares,bonds,property and cash.Others mayinvestinasingletypeofasset.Themainassettypesaresummarized below:
Deposits
Thistermisusedtodescribeinvestmentssuchascashandshorttermfixedinterestinvestments.Theyworkinmuchthesamewayasabankorbuildingsocietyaccount.Investmentsareputondepositwithafinancialinstitutionwheretheyearninterest. Depositsaregenerallyconsideredsaferthanotherassetclasses;however,overthelongerterm they are likely to provide lower returns
Corporate bonds and gilts
Corporate bondsare loans to companies for a set period. During this period the company pays interest andeventually returns the original amount.
Themainriskwithacorporatebondisthatthecompanyto which the loan has been made might go bankrupt and fail to pay it back.Corporate bonds tend to be lessvolatileinvestments than companyshares but provide theopportunity for higher growth than deposits.
Gilts are loans to the Government and work in much thesame way as corporate bonds.However,gilts areconsideredvery safe investments - since the Government is unlikely togo bankrupt.
Todate,the British Government has never defaultedon a gilts issue.Like corporate bonds,gilts tend to beless volatile than companyshares but providegreateropportunities for growth than deposits.
Equities
Equities arecompanyshares.Limited companies can sell their shares to raisecapital,payinga share of their profit(known as a dividend) to the buyer in return.Shares arebought and sold on the stock market,and their pricesfluctuatebased on anumberof factors includingthecompany’spotentialprofitability.Asa result,theytendtobetoo volatile for short-term investors.However,it is widelyaccepted that equities have the potential for better returnsover medium and longer terms.It’s also worth bearing inmind that equities tradedonsomeoverseas stock exchangescanbemorevolatilethanUKequities.Theyarealsoaffectedbyfluctuationsincurrencyexchangerates.
Mixedassets
Somefundswill invest in a mixture ofdifferent asset
classessuchascompanyshares,propertyanddeposits.
Thisway,ifone particular investment performs poorly,
youwon’t be asbadlyaffectedbecause your riskis spread
morewidely.
Who’s on the committee?
TheIACcomprisesoffive pensionsandinvestmentexperts.
Currently,the committee comprises:
•Julius Pursaill, Independent Chairperson
•Dr James McCourt, Investment Office Director, Royal London Group
•Piers Hillier, Chief Executive Officer, Royal London Asset Management
•Ewan Smith, Proposition Design & Market Engagement Director, Royal London Intermediary
•Colin Taylor, Independent Representative
3.RISK PROFILING
Riskattitude
Withinthispartyou’llneedtoincludedetailsaboutyour
client’ssuggestedattitudetorisk.Youmaywanttoincludeinformationabouthowriskaversetheyareandthelength oftimetheyhaveuntiltheyretire.Youshouldbaseyourrecommendationuponinvestmentoptionsthataresuitableforthemandwhichdoesnotexposethemtoanunnecessarylevelofrisk.
Herearesomesuggestions about what information youmay want to include:
•It’s important to explain to your client that the greater
level of risk they take with their investmentdecisions
increases the chances of greaterrewards as well as the
possibility of greater losses.
•You’ll also need to point out to your client that their investments can godown as well as up.
•If you’vegonethrough a risk questionnaire with your
client,you’ll need to discuss the outcomefrom this tool
andensureyour client agrees with yourrecommendation
and their suggested attitude to risk.If you’ve used our
riskprofilingquestionnairethefollowinginformation
may help you to giveyour client an idea of their attitude
to risk;
Governed Range
It is important to match your asset allocation to your risk
attitude.TheGovernedRangedoesthisforyou.Eachoption has been designed for a particular risk attitudewhich means Royal London take care of the asset allocation.
VeryCautiousinvestors
Very Cautiousinvestorstypicallyhaveverylowlevelsofknowledgeofinvestmentmattersandverylimitedinterestinkeepinguptodatewithinvestmentissues.Theyareunlikelytohaveexperienceofinvestment,havingonlysavedintobankaccounts.
Ingeneral,Very Cautiousinvestorspreferknowingthattheircapitalissaferatherthanseekinghighreturns.Theyarenotcomfortablewiththethoughtofinvestinginthestockmarketandwouldratherkeeptheirmoneyinthebank.
VeryCautiousinvestorscantakealongtimetomakeuptheirmindoninvestmentmattersandwillusuallysufferfromsevereregretwhentheirinvestmentdecisionsturnoutbadly.
Cautiousinvestors
Cautiousinvestorstypicallyhavelowlevelsofknowledgeaboutinvestmentmattersandlimitedinterestinkeepinguptodatewithinvestmentissues.Theymayhavesomelimitedexperienceofinvestmentproducts,butwillbemorefamiliarwithbankaccountsthanriskierinvestments.
Ingeneral,cautiousinvestorsdonotliketotakeriskwiththeirinvestments.Theywouldprefertokeeptheirmoneyinthebank,butmaybewillingtoinvestinothertypesof
investmentsiftheyarelikelytobebetterforthelongerterm.
Cautiousinvestorscantakearelativelylongtimetomakeuptheirmindoninvestmentmattersandcanoftensufferfromregretwheninvestmentdecisionsturnout badly.
ModeratelyCautiousinvestors
ModeratelyCautiousinvestorstypicallyhavelowtomoderatelevelsofknowledgeaboutinvestmentmattersandquitelimitedinterestinkeepinguptodatewithinvestmentissues.Theymayhavesomeexperienceofinvestmentproducts,butwillbemorefamiliarwithbankaccountsthanriskierinvestments.
Ingeneral,moderatelycautiousinvestorsareuncomfortabletakingriskwiththeirinvestments,butcanbewillingtodosotoalimitedextent.Theyrealisethatriskyinvestmentsarelikelytobebetterforlonger-termreturns.
ModeratelyCautiousinvestorscantakearelativelylongtimetomakeuptheirmindoninvestmentmattersandmaysufferfromregretwheninvestmentdecisionsturnout badly.
Adventurousinvestors
Adventurousinvestorstypicallyhave high levels ofinvestmentknowledge and keep up to date oninvestmentissues.Theywillusuallybeexperiencedinvestors,whohaveused a range of investmentproducts in the past,and whomay take an activeapproach to managing their investments.
In general,Adventurousinvestorsarehappy to takeinvestment risk and understand that this is crucial in termsofgeneratinglong-termreturn.Theyarewillingtotakeriskwith most of their available assets.
Adventurousinvestors will usually be able to make up theirmindson investment mattersquickly.Whiletheycansufferfromregret when their investmentdecisions turn out badly,they are able to accept that occasional poor outcomesarea necessary part of long-terminvestment.
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June 20185LT0106/13