An FCA probe into 13 advisory firms found many failed to show consistently good practice when undertaking research and due diligence across all products and services.

The regulator has instructed one firm to complete a past business review and told three firms to "make improvements in their research and due diligence process" and it has asked them to "make an attestation that they have done so, signed by a senior individual". 

The FCA published findings this morning which showed that good practice was generally demonstrated but there were problems that needed to be ironed out.

The report stated: "Many firms did not show consistently good practice across all products and services and there is room for further improvement. The poor practice we identified varied from issues that are easily addressed to those that are more significant. We were disappointed to identify issues relating to platform research and due diligence, particularly having previously published our expectations around this topic."

Some firms were found to be no longer reviewing platform options available for clients because the firms were content with the service they received from their existing platform provider.

This was described as ‘disappointing’ by the FCA which said it has previously published its expectations on this topic.

FCA disappointed to see issues on platform research and due diligence, particularly having previously published their expectations #TR16/1

— Rory Percival (@rorypercival) February 19, 2016

During the review, the FCA assessed 13 advisory firms of different sizes and with a variety of propositions.

Each firm was visited, their processes and procedures for carrying out research and due diligence reviewed and relevant staff were interviewed, the FCA stated.

But it did not carry out any individual file reviews to test outcomes of research and due diligence or test their approach in practice.

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.”

Firms need to ensure they are adequately managing conflicts between their clients’ and their own interests, officials said. For example, in some cases the review found the service that the firms received from a platform was considered more important than the service received by the client.

All firms, regardless of size or type, can carry out good research and due diligence #TR16/1

— Rory Percival (@rorypercival) February 19, 2016

Firms can rely on factual information from provider eg asset allocation, but not provider's opinion eg risk level #TR16/1

— Rory Percival (@rorypercival) February 19, 2016

The FCA report stated: “To deliver good outcomes for consumers, financial advisers need to undertake research and due diligence to assess the nature of the investments they recommend, their risks and benefits and to understand whether the product provider is appropriate for the client’s assets.

“In the review, it was clear that firms of all sizes and type were able to do this if they had the right approach and were putting the interests of their clients at the heart of their business. Without undertaking proper due diligence, firms will find it difficult to judge whether solutions are suitable for their clients.”

While the focus of the review was advisory firms, the FCA also visited seven external research and due diligence consultancy firms and three product or service providers to understand the wider market and their involvement in advisory firms’ approach. Officials said they did not carry out an assessment of these firms against FCA rules.