IOM Financial Advice Thematic Report (July 2025)[key findings and an action plan]

The Isle of Man [IOM] Financial Services Authority (FSA) conducted a thematic review of 20 low-impact financial advisory firms licensed under the Financial Services Act 2008, supervised by the Portfolio Supervision Division.

The review, conducted in two phases, aimed to assess compliance with the FSA Rule Book, focusing on:

• Conduct of Business (Part 6); and
• Risk Management and Internal Control (Part 8).

As a result, the IOM FSA has issued a Financial Advice Thematic Report (July 2025

• http://iomfsa.im/media/3485/financial-advice-thematic-report-july-2025.pdf

The report's objectives are to ensure client protection, reduce financial crime, and maintain confidence in the IOMs financial sector.

By addressing the reports' findings and recommendations, firms can enhance compliance with the FSA Rule Book, improve client protection, and align with best practices for governance and risk management.

BELOW ARE KEY FINDINGS AND AN ACTION PLAN FOR FINANCIAL ADVISORY FIRMS

Key Findings

1. Services and Client Types:
• Firms offer a mix of Execution Only (13 firms), Full Advice (16 firms), Limited Advice (13 firms), and Restricted Advice (5 firms).
• Client types include non-retail (8 firms) and retail (9 firms), with one firm not providing advice to retail clients.
2. Compliance with Advice Confirmation:
• All firms retain confirmation of the basis of advice provided (excluding Execution Only), per Rules 6.18 and 6.19.
• 18 firms communicate reduced investor protection clearly, with one firm exempt as it advises its funds, and one firm only provides Execution Only services.
3. Conflicts of Interest:
• All firms are required to maintain a Conflicts of Interest Register (Rule 8.10), but some fail to proactively record potential conflicts, which the FSA considers insufficient for effective risk management.
• Registers are reviewed by the Board (11 firms), the Head of Compliance (8 firms), or the Director/Compliance Officer (1 firm), typically annually, although some reviews are conducted quarterly.
4. Investment Committee Practices:
• Investment Committees meet with varying frequency: annually (14 firms), biannually (2 firms), monthly (1 firm), or never (1 firm). The FSA recommends quarterly meetings for effective oversight.
• Only 14 firms retain meeting minutes, with three firms not following best practice.
5. Conduct of Business Procedures:
• All firms have documented Conduct of Business procedures, including service types and conflict prevention policies (Rules 6.1, 8.5).
• Procedures often lack practical detail for day-to-day operations, particularly for different types of advice and gift/hospitality policies (Rule 6.3).
6. Suitability Assessments:
• 19 firms update suitability assessments before additional transactions, with one firm exempt (Rule 6.2).
• 17 firms review suitability cyclically (annually or based on triggers), which is considered best practice.
• Assessments cover client risk appetite, investment objectives, time horizon, age, health, family, financial situation, and portfolio risk profile.
7. Vulnerable Clients:
• 17 firms have vulnerable clients, and 16 have a documented Vulnerable Client Policy.
• 18 firms flag vulnerable clients in their systems, but only eight record instances of refusing transactions due to vulnerability (Rule 6.32).
8. Client Files:
• 18 firms conduct and maintain Fact Finds for retail clients (Rule 6.30), provide signed copies, and include tailored, jargon-free Reasons Why Letters that detail costs and risks (Rule 6.37).
• 16 firms provide contract notes and transaction data to retail clients (Rule 6.41).
9. Continuing Professional Development (CPD):
• 19 firms ensure advisors complete CPD, with one firm’s initial “No” response corrected.
• CPD records are maintained by the firm (13) or compliance team (6), reviewed annually (13 firms), biannually (1 firm), or more frequently (6 firms).
10. General Observations:
• Firms engaged cooperatively within the required timeframe, aligning with Rule 8.30.
• The FSA emphasises a risk-based supervisory approach, with low-impact firms subject to annual thematic reviews, supplemented by inspections if risks are identified.

Action Plan for Financial Advisory Firms

To align with the FSA’s findings and best practices, firms should implement the following actions:

1. Enhance Conflicts of Interest Management:
• Update the Conflicts of Interest Register to include potential conflicts, not just actual ones, to align with Rule 8.9.
• Ensure the Board reviews the Register at least annually, with quarterly reviews for higher-risk firms.
• Document evidence of conflict mitigation strategies and link to Rule 8.10(2)(b).
2. Strengthen Investment Committee Practices:
• Schedule Investment Committee meetings at least quarterly to oversee strategies and performance.
• Retain detailed minutes of all meetings to demonstrate compliance and decision-making processes.
3. Refine Conduct of Business Procedures:
• Revise procedures to include practical, detailed steps for each type of advice (Full, Limited, Restricted) and ensure they are actionable on a daily basis.
• Establish clear gift and hospitality policies with defined limits, ensuring regular employee training (Rule 6.3).
4. Improve Suitability Assessments:
• Conduct cyclical suitability reviews at least annually or upon trigger events to ensure alignment with client needs (Rule 6.2).
• Document both recommended and rejected investments with clear rationales (Rule 6.32).
5. Enhance Vulnerable Client Protocols:
• Develop or refine a Vulnerable Client Policy, ensuring it addresses identification, communication, and transaction refusal processes.
• Implement system flags for vulnerable clients and maintain records of any transaction refusals due to vulnerability (Rule 6.32).
6. Strengthen Client File Management:
• Ensure Fact Finds and Reasons Why Letters are completed, signed, and provided to retail clients, with jargon-free language and complete cost disclosures (Rules 6.30, 6.37).
• Provide contract notes and transaction data to retail clients in an understandable format (Rule 6.41).
7. Maintain Robust CPD Programs:
• Monitor and document advisor CPD completion, with records reviewed at least annually by a compliance or training officer.
• Align CPD programs with the Authority’s guidance to ensure ongoing advisor competence.
8. Engage Proactively with the FSA:
• Maintain open dialogue with the Portfolio Supervision Division, responding promptly to requests and participating in thematic reviews.
• Review the FSA’s Supervisory Methodology (May 2023) to understand risk-based oversight expectations.

By addressing these areas, firms can enhance compliance with the FSA Rule Book, improve client protection, and align with best practices for governance and risk management.

SOURCE

http://iomfsa.im/media/3485/financial-advice-thematic-report-july-2025.pdf