September 1, 2023

Writing Effective Suitability Reports: Best Practices and Tips

By Patrick Boughton

As you know, suitability reports play a crucial role in demonstrating that the advice provided to clients is tailored to their individual goals, objectives, and circumstances. These reports meant to serve as a formal record of client conversations, aid in confirming client understanding, and provide evidence of the advice process for regulatory bodies. However, crafting suitability reports that are both compliant and easily understandable for clients can be a challenge and very time-consuming. In this blog, we will explore best practices and top tips for writing effective suitability reports that meet regulatory requirements and support positive outcomes for clients. 


Importance of Consumer Focus in Suitability Reports 

When writing suitability reports, it is essential to prioritise the client’s understanding and outcome over compliance requirements. Consumer-focused suitability reports aim to communicate complex financial advice in a clear and concise manner, ensuring that clients comprehend the recommendations being made. These reports should include a summary of the advice provided, the client’s goals and objectives, the associated risks and benefits, and the rationale behind the recommendations. Additionally, suitability reports should address any client concerns or questions and provide guidance on how to proceed with the recommended investments. By prioritising client education and aligning outcomes with their financial goals, suitability reports can enhance client confidence and lead to better overall outcomes. 


Key Elements to Include in Suitability Reports 

To ensure that suitability reports are comprehensive and effective, several key elements should be included: 

1. Client Demands and Needs 

The suitability report should clearly specify the client’s demands and needs, which encompass their goals, objectives, and desired outcomes. It is crucial to accurately capture and document the client’s financial aspirations and tailor the recommendations accordingly. 

2. Explanation of Recommendations 

The report should provide a detailed explanation of why the recommended transaction is suitable for the client, based on the information they have provided. This explanation should clearly demonstrate how the recommendations align with the client’s goals and objectives. 

3. Risk Assessment and Disclosure 

Highlighting the risks associated with the recommendations is crucial for transparency and client understanding. The report should provide a clear explanation of the potential risks involved in the recommended investments and any potential disadvantages that the client should be aware of. 

4. Costs and Charges 

Suitability reports should include a comprehensive breakdown of the costs, charges, and potential penalties associated with the recommended investments. This information should be presented in a clear and transparent manner to ensure the client understands the financial implications. 

5. Balanced View and Alternative Options 

To provide a well-rounded assessment, suitability reports should present a balanced view of the recommended products or services. It is also essential to address alternative options and explain why certain products or services were chosen while others were not recommended. 

6. Comparison of Existing Plans 

If the recommendations involve replacing an existing plan, the suitability report should provide a clear and objective comparison between the old and new plans. This comparison should highlight the benefits and potential drawbacks of making the switch. 

7. Personalised Language and Client-Specific Details 

To ensure the suitability report is engaging and relevant to the client, it should be personalised and tailored to their specific circumstances. Using the client’s own words from previous conversations and incorporating their individual details adds a personal touch and enhances understanding. 

8. Compliance with Regulatory Requirements 

Suitability reports must adhere to regulatory guidelines and requirements. It is essential to ensure that all necessary compliance information is included in the report, demonstrating a thorough understanding of the regulatory framework. 


Tips for Writing Effective Suitability Reports 

Now that we have explored the key elements to include in suitability reports, let’s delve into some practical tips for writing reports that are both compliant and client-friendly: 

1. Start with the End in Mind 

A well-prepared and thorough fact-finding process is the foundation of an effective suitability report. Take the time to gather all relevant information from the client and ensure that their goals and objectives are clearly defined. The quality of your fact-finding will significantly impact the quality of your recommendations. 

2. Put Yourself in the Client’s Shoes 

When making recommendations, ask yourself if you would be comfortable following the advice if you were in the client’s position. Being honest with yourself about the suitability of the recommendations will help ensure that you are providing advice that aligns with the client’s best interests. 

3. Understand and Define Objectives 

To accurately capture the client’s objectives, it is crucial to drill down and identify the specific goals they are aiming to achieve. Avoid vague statements and quantify objectives wherever possible. This clarity will help establish a solid foundation for your recommendations. 

4. Align Recommendations with Client Objectives 

Clearly articulate how your recommendations align with the client’s goals and objectives. Emphasise how the recommended products or services will help the client achieve their desired outcomes. This connection will help the client understand the rationale behind your recommendations. 

5. Assess Attitude to Risk, Knowledge, and Experience 

Thoroughly explore and document the client’s attitude to risk, knowledge of investments, and experience with financial matters. Use questionnaires and profilers as tools to gather this information, but ensure that you engage in meaningful conversations with the client to validate and supplement the data obtained. 

6. Highlight Risks and Costs 

Use bold text or other visual aids to draw attention to key risks associated with the recommended investments. Clearly explain the potential downsides and make sure the client fully comprehends the risks involved. Similarly, provide a transparent breakdown of costs and charges to avoid any surprises. 

7. Maintain Consistency and Accuracy 

Double-check all calculations and ensure that information within the fact-finding document and suitability report is consistent and accurate. Avoid introducing new information in the suitability report and ensure that all details align with the content of previous discussions and documents. 

8. Consider Replacement Business Carefully 

When dealing with replacement business, carefully consider and document the client’s objectives, the charges involved, performance comparisons, tax implications, and risk factors. It is crucial to demonstrate why the recommended product or service is more suitable than the existing plan and address any potential concerns. 

9. Keep Reports Clear and Concise 

Strive for simplicity and clarity in your suitability reports. Avoid excessive technical jargon and use plain language that the client can easily understand. Use headings, bullet points, and graphics to break up the information and make it more digestible. 

10. Seek Compliance Guidance 

Consult regulatory guidelines and seek compliance advice to ensure that your suitability reports meet all necessary requirements. Staying informed about regulatory expectations will help you stay on the right side of the regulator and protect both your clients and your business. 


Utilising Software Tools to Enhance Suitability Reports 

As the demand for more efficient and user-friendly suitability reports increases, investment management firms are turning to software tools to streamline the report-writing process. These tools can help automate data gathering, generate customised templates, and provide compliance checks to ensure that suitability reports meet regulatory standards. Incorporating these tools into your workflow can save time, improve accuracy, and enhance the overall quality of your suitability reports. 

Most suitability report-writing tools have their advantages and disadvantages. For instance, some tools integrate with back-office systems, while others integrate with cashflow modeling tools. Some of these tools have user-friendly interfaces that are smart and easy to use, but others may appear more cumbersome. Additionally, there are tools that generate concise reports, while others produce more detailed and extensive ones.

Here are a couple of helpful tools:
Paraplanning Online: 

In conclusion, writing effective suitability reports requires a balance between compliance and client understanding. By following best practices, including key elements, and incorporating software tools when appropriate, investment management professionals can create suitability reports that not only meet regulatory requirements but also support positive outcomes for clients. Prioritising clear and concise communication, personalisation, and a thorough understanding of the client’s goals and objectives will ultimately lead to better client outcomes and long-lasting client relationships. 

Remember, suitability reports are not just compliance documents; they are opportunities to educate and empower clients, ensuring that they make informed financial decisions that align with their aspirations. 

Meet the Author

Patrick Boughton

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