A review by the Financial Conduct Authority (FCA) revealed while the firms were able to demonstrate some good practice on the work they did to better understand the products and services they recommend, there is “room for further improvement”.

The FCA said firms also need to “adequately manage conflicts” between their clients’ and their own interests, as it found the service a firm received from a platform was considered more important than the service received by the client.

Some firms were also found to no longer review the platform options available for clients because they were happy with the service received – a move deemed “disappointing” by the FCA.

In order for an adviser to recommend a product which is suitable for their client needs, they need to undertake research to assess the nature, risk and benefits of the investments they recommend.

While the FCA found that firms of all sizes and types were able to do this if they had the right approach and put the interests of their clients at the heart of their business, it added those who fail to undertake “proper due diligence” will find it difficult to judge what is suitable for the customer.

It found the firms which got research and due diligence right also had a good culture of challenge which allowed staff to question a firm’s approach.

In firms where this culture is weak, it could lead to firms not questioning why certain products and services are recommended.

Firms need to improve

Linda Woodall, director of life insurance and financial advice at the FCA, said: “Research and due diligence is one of the three pillars of getting advice right, which is why we have returned to this issue. Firms clearly want to get this right and all firms, regardless of size or type, can carry out good research and due diligence.

“However, there are still improvements firms need to make and we’d encourage all firms to look at our findings and ensure that they are challenging themselves to ensure they’re delivering quality due diligence for their clients.”

The FCA will publish a second consultation paper where it will set out its expectations and help the 13 firms which formed part of the review, adopt good practices.