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Firms not clear enough on charges and services

Robyn Hall

April 7, 2014

The review into disclosure by financial advisers found that 73% of firms are failing to provide the required information on the cost of advice.

Clive Adamson, director of supervision at FCA, said: “RDR has involved a major change to the investment advice landscape.

“Whilst we have seen a lot of positive progress and willingness by advisors to adapt to the new environment, I am disappointed with the results of our latest review looking at whether advisers are clear with their customers on costs and services provided.

“We will be helping the industry again to understand our requirements with the release of a video guide but these results are a wake-up call and we expect the industry to respond.”

The latest review is the second of a three-cycle assessment of how firms implement the disclosure components of the Retail Distribution Review.

The RDR, which was introduced at the beginning of 2013, demands new disclosure requirements in order to improve transparency for consumers.

The objective is to ensure that consumers have the necessary information needed to make informed decisions and are clear on the costs and services of advisory firms to improve competition in the market.

The first cycle of the three-stage review was published in July 2013 and found that progress had been made, with a general willingness from firms to adapt to new rules.

However, several common issues were found and further examples of good and poor practice have been created to aid firms.

Despite the latest research and the straightforward nature of the new requirements, there are still issues which remain.

In particular the second-cycle found that:

• 58% of firms failed to give clients clear upfront generic information on how much their advice might cost.

• 50% of firms failed to give clients clear confirmation on how much advice would cost them as individuals.

• 58% of firms failed to give additional information on charges. For example, not highlighting that on-going charges may fluctuate.

• 31% of firms offering a ‘restricted’ service (they cannot advise on the full range of financial products and providers available) were not being clear they were restricted, or the nature of the restriction.

• 34% of firms failed to give clients a clear explanation of the service they offer in return for an ongoing fee and/or their right to cancel this service.

The failings appear to be widespread across the industry; however wealth managers and private banks performed poorer than other firms in nearly all aspects.

These failings suggest that some consumers are unaware, or have been misled in relation to the cost of advice (both initial and ongoing), the type of service offered by a firm, the nature of a firm’s restriction (when applicable), or the service they can expect to receive in return for the on-going fee.

The third cycle review will commence in the third quarter of 2014.

If firms are found to be continually failing in their compliance with rules on disclosure, the FCA has stated that it will consider further regulatory action, including referrals to enforcement.

Despite the warning issued by the FCA, it is unlikely that two firms with substantial failings uncovered in the second cycle will be referred to the FCA’s Enforcement and Financial Crime Division.

One firm in question is from the financial advisory sector, whilst the other is a wealth management firm.

Several new tools are now available to firms, including examples of good and poor practice and a fact sheet, all of which were published in 2013.

The FCA has produced a new video providing an overview of the key disclosure requirements to aid firms further.

As part of the review into disclosure, the FCA has looked into how advisory firms that describe themselves as independent were using the label.

These results were published separately in March and found that most firms are using the independent label accurately.


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