Applying the result of your ATR to a solution therefore requires far more information than one ATR assessment.
The FCA agrees, and states in FG11/05 that the ATR results of a client should not be the only point of consideration when designing a suitable investment solution.
It explicitly mentions capacity for loss, a client’s age, and the expected term of the investment as being factors to consider when creating an investment solution.
It also wants to see these assessments completed separately to each other, and presented separately, so as not to conflate different pieces of information and mask where key information has come from (FG11/05 section 3.20-3.24).
Given the fair treatment of vulnerable customers (FG21/1,) it is also quite likely that you will want to include an assessment of vulnerability to ensure that your clients are actually able to make a decision about their finances.
As your client enters a drawdown phase, separate conversations will need to take place around income needs in retirement, and the FCA agrees (TR24/1 section 1.29-1.31) that a robust cash flow tool can be used here to ensure that client income requirements are taken into account appropriately and sustainable levels of income can be created from the chosen solution.
The ability to consider all these factors alongside each other will be of the utmost importance when you get to recommending an investment solution, so that you can show that all factors have been assessed independently and considered when designing a suitable solution.
Summary
The FCA has been clear in its guidance that relying solely on at ATR assessment to justify a client’s investment solution is not appropriate, however it should be used by advisers as part of a wider conversation, to ensure that clients are recommended personalised suitable solutions.
When using an ATR assessment as part of the suitability assessment, advisers are encouraged to:
1. Pick an ATR that is fit for purpose, fully documented and rigorously tested so that any limitations can be understood and mitigated for.
2. Discuss the results of the ATR before selecting any risk profile. Ensure that information is presented to the client in a range of ways to help with engagement.
3. Consider other factors that might affect the suitability of an investment solution and document this, such as:
- capacity for loss, including the use of a cash flow model if capacity is identified as a concern, or if a client is withdrawing from some funds so that income needs can be captured in full;
- a client’s preferences for income if they are at or in retirement;
- vulnerability assessment;
- age; and
- probable investment term.
4. Narrow down which set of funds and products that might be appropriate given the characteristics of your client and where they fit into your target markets.
