7.3 Assessment, Analysis and Identifying Appropriate Solutions

Once the fact-find is complete, the adviser moves from gathering information to analysing it. Analysis is the bridge between raw client data and a suitable recommendation. It has three stages: assess the client's situation, build a risk profile, and identify and compare appropriate solutions.

Analysing the Fact-Find

Analysis means turning the fact-find data into a structured picture of the client's situation. The adviser looks for:

• Surpluses and shortfalls: is income covering expenditure, and is there money available to invest?
• Asset/liability matching: are short-term needs funded by liquid assets and long-term goals by growth assets?
• Concentrations and gaps: too much in one provider, one asset class, or one pension wrapper?
• Inconsistencies: stated objectives that conflict with the financial position (e.g. wanting high income from a low capital base).
• Vulnerabilities and risks: reliance on a single income, health risks, lack of emergency fund.

A useful output is a client balance sheet and cashflow summary:

This snapshot is the foundation on which suitability is assessed.

The Three Dimensions of Suitability

The FCA's suitability expectations cover three overlapping dimensions:

All three must be addressed. A product that is intrinsically suitable but mismatched to the client fails client-specific suitability. A product that matches the client but is used excessively or with disproportionate cost fails quantitative suitability.

Risk Profiling

A risk profile is the synthesis of four fact-find inputs into a single position on a risk scale (commonly 1–10):

1. Attitude to risk (ATR) — willingness to accept uncertainty.
2. Capacity for loss (CFL) — objective ability to absorb losses.
3. Time horizon — longer horizons generally support higher risk.
4. Knowledge and experience — sophistication and familiarity with the asset classes.

A common synthesis rule is that the lowest of ATR and CFL sets the ceiling, modified upwards only where time horizon and experience clearly support it. The result is mapped to an asset allocation between defensive assets (cash, short-duration bonds) and growth assets (equities, commercial property, higher-yield credit).

Risk profiling is not a one-time event. Life events, market moves and changing goals all shift the profile, so it should be reviewed at every periodic review.

Capacity for Loss in Practice

CFL is more than a label. The adviser should consider:

• Income resilience — would a 20% market fall affect the client's ability to meet essential expenditure?
• Time to recover — does the client have enough time before the money is needed?
• Cash buffer — is there an emergency fund so the client is not forced to sell growth assets at a loss?
• Specific commitments — school fees, mortgage redemption, care costs with fixed dates.

If the answer to any of these is uncomfortable, capacity for loss is low — regardless of the client's willingness to take risk.

Matching Products to Needs

With a risk profile and objectives in place, the adviser identifies products that could meet the need. Matching means checking each candidate against the client's situation:

For each candidate the adviser should consider:

• Risk/reward profile — does the expected return match the risk profile?
• Term and liquidity — does the lock-up fit the time horizon?
• Charges — are total costs proportionate to expected return?
• Provider strength — financial soundness, claims-paying record (for protection), platform resilience.
• Features — guarantees, options, flexibility to adapt.
• Tax treatment — wrapper, income tax, CGT, IHT implications.

Comparing Options

The adviser rarely identifies only one possible solution. Good practice is to compare at least two and to explain in the suitability report why the recommended option was preferred. Comparison criteria include:

• Total cost over the expected holding period.
• Risk profile and downside exposure.
• Flexibility — can the client change course?
• Provider and platform reliability.
• Tax efficiency.
• Service levels and ongoing support.

Considering Tax Efficiency

Tax is a factor in suitability, not the whole of it. A tax-efficient wrapper that holds an unsuitable investment is still unsuitable. Common UK tax-efficiency considerations in 2026/27:

• ISA allowance: £20,000 per tax year, tax-free growth and income.
• Personal allowance: £12,570 income tax allowance.
• CGT annual exemption: £3,000; rates 18% (basic-rate) and 24% (higher-rate) for non-residential assets.
• Pension tax relief: contributions relieved at marginal rate, annual allowance (usually £60,000 or capped by tapering), 25% tax-free cash at retirement (within the Lump Sum Allowance of £268,275).
• Lifetime ISA: up to £4,000 per year with 25% government bonus for under-50s, with restrictions on withdrawal.

An adviser should:

• Use allowances that match the client's objectives and time horizon.
• Avoid recommending tax-driven structures that conflict with the client's risk profile or liquidity needs.
• Document the tax assumptions used (current-year rates, residency, expected future changes).

Common Analysis Pitfalls

• Reverse engineering: starting with a product and finding reasons to justify it.
• Ignoring costs: comparing gross returns without net-of-cost outcomes.
• Stale data: using a risk profile from a previous review that no longer reflects circumstances.
• Confusing tax efficiency with suitability: a tax wrapper is not a strategy.
• Over-reliance on a single provider's illustration: independent comparison requires more than one source.

Output of the Analysis Stage

The output of analysis is a shortlist of one or more candidate solutions, each documented against:

• The client's objectives.
• The risk profile and CFL.
• The financial position.
• The tax position.
• Cost, term, liquidity and provider.

This shortlist becomes the input to the recommendation stage, where the adviser selects one solution, explains why it is suitable, and (where relevant) explains why alternatives were not recommended.