Advice firms have still not taken on board increased disclosure required in relation to their own charges and will be subject to enforcement action unless they strive to improve quickly, the Financial Conduct Authority has said as it signals a tougher line on enforcing RDR fee rules.
In the second of three thematic reviews into firms’ adoption of the RDR principles, the FCA reveals that it again found ‘disappointing’ results suggesting that firms are still not being clear enough on how much their advice will cost clients.
The FCA stated that firms must first provide ‘generic’ pricing information including how much they charge and on what basis, followed by specific information to individual clients estimating how much it would cost them to receive advice.
This means giving an approximate pounds figure where a firm charges a percentage, or an estimate of the number of hours of work involved where charges are given hourly, the FCA states.
It also said a number of firms continue to fail to communicate what restrictions they operate within if they are not independent - or even to explicitly state that are restricted at all.
Two unnamed firms are likely to be referred to the FCA’s enforcement and financial crime division for “egregious” failings in the second stage of its review, including one ‘financial adviser’ and one ‘wealth manager’.
Clive Gordon, head of investment advisers and platforms at the FCA, emphasised the tougher approach of the regulator. He said: “It’s a lack of engagement. It’s a failure by them to put consumers at the heart of their business models.”
In relation to fees disclosure, the FCA review found:
• 73 per cent of firms failed to provide the required generic information on how they charge for advice, or failed to clearly confirm the specific cost of advice to their clients individually and in a timely manner;
• of this figure, 58 per cent of firms failed to give clients clear upfront generic information on how much the advice would cost and 50 per cent failed to give clients clear information on how much the advice would cost them as individuals; and
• 58 per cent of firms also failed to give additional information on charges, for example not highlighting that on-going charges may fluctuate.
In relation to the nature of the advice given, it found:
• 31 per cent of firms offering a ‘restricted’ service were not being clear they were ‘restricted’ or the nature of the restriction; and
• 34 per cent 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 FCA found similar failings in its first of three reviews, but at the time conceded that the new disclosure rules were relatively new and produced guidance to help firms comply. Now however, the regulator argues firms have had enough time to refine their practises but many have failed to do so.
“We believe that by the start of the second stage of our review, firms had had sufficient time to prepare for and then implement the required charges.
“So it is concerning that firms are continuing to repeat the failings highlighted in the thematic report published after the first stage of the project.”
Clive Adamson, director of supervision at the FCA, said: “RDR has involved a major change to the investment advice landscape.
“While we have seen a lot of positive progress and willingness by advisers to adapt to the new environment, I am disappointed with the results of our latest review looking at whether advises 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.”
