Suitability reports are used as a method to demonstrate that any advice given matches a client’s needs. We take a look at how suitability reports work and can be used for property investment.
What is financial suitability?
Financial suitability is about matching the right product to meet the client’s needs and goals. Special consideration should be given to a client’s attitude to risk and individual circumstances to ensure that the correct advice is given.
Financial suitability entails designing a financial plan or solution which solves a client’s specific investment needs. This sounds simple in practice but it can be a little more difficult in the real world.
What is a suitability report?
For an investor, a suitability report is a formal document which outlines your financial suitability for the advice you have received. In short, it will explain why certain recommendations have been made. These recommendations should relate to your personal circumstances to give you the best possible advice.
With this in mind, a suitability report should possess some key qualities. These include:
The report should be communicated in plain language without adding any unnecessary jargon. This is so the recipient can read the report and clearly understand its findings. In addition, the report should be of a short length and be composed of clear points. These points are discussed in the next section.
2. Tailored to the client
A suitability report should be personal to you. It should include all your personal circumstances. This is to ensure that the advisor fully understands your needs and takes them into account.
3. Balanced view
The report should give you a balanced view of any recommendation. This is so you can make an informed decision on suitability.
Suitability reports are usually sent retrospectively. Consequently, we aim to send this out to you within five working days of your purchase decision. This is to ensure that you are still within your “cooling-off period”. As a result, if you receive the report and you feel it is not the right advice for you, then you can call the investment off.
What is included in a suitability report?
A suitability report will have several clear points. These include the following:
1. Explanation for recommendations
This part details why certain recommendations have been made. These recommendations should relate to your investment objectives and explain how they will help you accomplish them. The explanation should also relate to your circumstances to account for any important considerations which are important to you.
During the investment review, your consultant will do a fact find. This fact find will be used compose a summary of your needs report. We will use your summary of needs report to make your suitability report. It is important that you fully disclose full details during the fact find, as omitting any information will affect the validity of any recommendations given.
Any recommendation for products needs to outline any risks involved. This is important for two reasons. Firstly, so you fully understand what is the worst that can happen if things go wrong. Secondly, it will highlight the probability of such an event occurring. At this point, you can take a view to deciding whether you are comfortable with the recommendation, as you may want to reclassify your risk profile.
A suitability report will clearly disclose all charges concerning the purchase. If third party professionals such as solicitors need to be instructed, and it is not possible to know these fees, then this will be communicated. However, an estimate of what a typical transaction cost will be mentioned.
Some properties are taxed differently. For example, a normal buy-to-let has a 3% surcharge for stamp duty whilst commercial property doesn’t have this levy and the tax bands are lower. This is an important consideration when a making recommendation as it affects the real investment return. Likewise, when you decide to sell a property you are subject to capital gains tax. If this is not structured correctly it could result in you paying more tax. We will cover this issue within our report. If leaving a legacy is important, we can offer guidance on inheritance tax rules and regulations.
There have been recent changes to how mortgage interest tax relief has been calculated. This has impacted many higher rate earners. As a result, this type of client may be better served to buy a property through a limited company.
7. Omitted objectives
If we feel that there are other important objectives which you have not included we want to inform you of these. This is to ensure that you can see the bigger picture.
Why are suitability reports important?
A suitability report can help you to see whether an investment is right for you. Whilst no one has a crystal ball to predict the future, with a suitability report you will have a clear understanding of what can go wrong and an understanding if it does how it will impact your financial health.
On the flip side, the report gives you a clear plan of how you can achieve your financial objectives. The above chart shows how suitability reports should be conducted to deliver the best possible service. If you would like further information on suitability reports then we advise that you visit the Suitable Advice Institute where you can find lots of useful information.
Why do we offer a suitability report?
Esper Wealth offers a suitability report to try to give the best advice to the client.
In the UK property companies now need to be registered with a property redress scheme. This acts as an arbitrator for you if you get bad advice.
Unfortunately, with property, the level of regulation is far lower compared to other financial products. At Esper Wealth we try to address this by offering a suitability report. This is similar to what you would receive from a financial advisor. This is so we as a company are more focused on doing what is best for the client as opposed to focusing exclusively on sales.
It is important to understand that Esper Wealth like other property companies are not an FCA investment firm. This is because property investment falls outside of their regulation. This means that whilst we offer a suitability report, you still do not get the same level of regulatory protection as you would from an FCA regulated institution. As a result, you may wish to consult with an FCA approved investment professional.
We feel that a suitability report though is important, as it explains why we make recommendations. Furthermore, if anything does go wrong with any investment and you decide to complain then you have clear documentation outlining the advice that we have given you. This is an important as The Property Redress Scheme can see whether we have fairly communicated any products and their associated risks. You can find out more about our formal complaints procedure at the bottom of our website.
At Esper Wealth, we believe more is needed to be done to better protect individuals when investing in property. This is why we have chosen to adopt the best practices from better-regulated industries to fully serve your needs. This is the reason why we have decided to offer a free investment review to prospective clients. The ensuing suitability report gives us more culpability for the advice that we give.
Our approach of offering a comprehensive investment review backed up with a suitability report is a service which distinguishes us from our competitors.
Esper Wealth works closely with FCA regulated partners who are available to give an independent view on investment, mortgages and other important aspects of financial planning.
If you would like to know more about the Esper way please contact a member of staff who will be happy to take you through our services.