New client file vs annual review file: what each needs

A file reviewer opens two folders on the same morning. One holds a new client's first recommendation: a pension consolidation with a fresh fact find, risk assessment and suitability report. The other holds the fifth annual review for a client who has been with the firm for years. Checking both against the same list wastes time on one and misses the point of the other.

The difference between a new client file vs annual review file comes down to the question each must answer. The new client file must show the advice was suitable when it was given. The annual review file must show that the service the client pays for was delivered, and that the arrangements are still right for them. This guide sets out what each needs and how to check it.

The new client file: was the advice suitable?

A new client file is built from nothing, so everything the recommendation relies on must be in it.

Information about the client

For COBS 9A business, COBS 9A.2.1R requires the firm to obtain the client's knowledge and experience, "financial situation including his ability to bear losses" and "investment objectives including his risk tolerance" (COBS 9A.2). For non-MiFID business, COBS 9.2.1R(2) requires the firm to "obtain the necessary information regarding the client's: (a) knowledge and experience in the investment field relevant to the specific type of designated investment or service; (b) financial situation; and (c) investment objectives" (COBS 9.2). Without it, the firm "must not make a personal recommendation" (COBS 9.2.6R).

The suitability report

COBS 9.4.7R requires the report to "specify… the client's demands and needs", "explain why the firm has concluded that the recommended transaction is suitable" and "explain any possible disadvantages of the transaction for the client" (COBS 9.4). COBS 9A.3.3R adds the investment term, knowledge and experience, attitude to risk and capacity for loss (COBS 9A.3).

Charges and the ongoing service

The charging structure must be disclosed "in good time before making the personal recommendation" (COBS 6.1A.17R), and the total adviser charge agreed and disclosed in cash terms (COBS 6.1A.24R). Where adviser charges are paid over time for an ongoing service, the file should show the service described and "a right to cancel the ongoing service… without penalty" (COBS 6.1A.22R) (COBS 6.1A). The ongoing service agreement signed here is the yardstick every later annual review file will be measured against.

The record of the advice

For retail advice, COBS 9A.4.2AR requires the firm to record "(a) the time and date on which the investment advice was provided; (b) the financial instrument that was recommended; and (c) the suitability report provided to the client" (COBS 9A.4).

The annual review file: was the service delivered, and is it still suitable?

An annual review file builds on what is already there. Its job is to show what happened this period.

The periodic suitability assessment

Where the firm provides a periodic suitability assessment, COBS 9A.3.9R says it "must review the suitability of the recommendations given at least annually" (COBS 9A.3). The file should contain the review itself, dated, with a clear conclusion on whether the existing arrangements remain suitable.

Information kept up to date

COBS 9A.2.10R requires "adequate and up-to-date information" (COBS 9A.2). Look for an updated fact find, or a dated note recording what was checked and that nothing material changed. Attitude to risk and capacity for loss should be reconsidered, not simply copied forward.

Evidence the service was delivered

The FCA's review of ongoing advice found reviews were delivered in about 83% of cases, with the client declining or not responding in 15% and the firm making no attempt in fewer than 2% (FCA ongoing advice review). The data covered 22 of the largest firms and "was not a representative sample", but the message for any firm is the same. The FCA lists as good practice "Appropriate record-keeping to make sure firms can evidence delivery of their services where provided".

For clients who decline, the file should show every contact attempt, and where they decline over several years, a discussion of "whether continuing with the service is still in their best interest".

Value for the fee

The annual review file is where price and value become concrete. PRIN 2A.4.16R(2)(c) refers to "the interaction between the price paid by the retail customer and the extent and quality of any services provided by the distributor" (PRIN 2A.4). The FCA's price and value review describes as poor practice firms that "relied on the fact that these charges were disclosed to, and agreed by, customers as evidence of fair value" (FCA price and value review). A file that shows the charges taken and the service delivered side by side makes that interaction visible.

New client file vs annual review file: side by side

Why they are checked differently

Using one checklist for both can cause two problems. Annual review files get marked down for not containing a full new recommendation they were never meant to have, and new client files get passed because the reviewer is looking for evidence of service delivery that is not yet relevant.

Separate checklists, or separate sections of one checklist, keep the reviewer focused on the right question. They also make your results more useful: you can see whether your weak point is the quality of new advice or the delivery of the ongoing service, which call for very different fixes. The first usually points to adviser coaching and templates, the second to diary management, client contact processes and the service proposition.

An annual review file also benefits from comparison. Reading this year's file against last year's shows whether actions were closed, whether the client's circumstances were genuinely revisited and whether quality is improving.

A note on proposed changes

The FCA's CP26/10 proposes "Replacing the annual suitability review with periodic reviews based on clients' needs" and merging COBS 9 and COBS 9A (CP26/10). These are proposals in a consultation; the policy statement has not been published. Check your files against the rules in force today, and see our article on the FCA ongoing advice review for more on what firms should check now.

How Scrutineer handles the two

Scrutineer keeps separate rule packs for new client files and annual review files, so each is judged against the expectations that fit it. It compares annual review periods, so you can see a file improve or slip year on year, and its section scores cover areas such as service delivery, risk reassessment, suitability confirmation and communication records. By our estimate a review drops from half a day to minutes. Your reviewers still decide what each finding means.

Frequently asked questions

Does an annual review file need a new suitability report?

It needs evidence of the review and its conclusion on whether the arrangements remain suitable. Where the review leads to a new recommendation, the new recommendation brings its own suitability requirements.

Can we use one checklist for both kinds of file?

You can, if it has separate sections for each. A single undivided list tends to ask the wrong questions of one file or the other.

What should an annual review file show for clients who did not respond?

Every contact attempt, dated, and where clients decline over several years, a discussion of whether continuing with the service is still in their best interest.

See how Scrutineer applies separate rule packs to each kind of file, or book a twenty-minute demo with Adam Booth on Microsoft Teams, run live on a demo firm with nothing to prepare.