The FCA’s latest thematic review TR14/6 - Supervising Retail Investment Firms: Being Clear About Adviser Charges and Services - reviewed 113 firms across the market and reported multiple failures to disclose charges post-RDR.
The regulator also warned advisers that they have until the third-quarter of 2014 to get disclosure right or they will face “further regulatory action” or enforcement.
When questioned on whether it could cope with the level of “regulatory action” required to deal with nearly three-quarters of the advised market failing to disclose charges in Q3, Clive Gordon, head of investment advisers and platforms at the FCA, said it was “too soon to judge”.
Mr Gordon added that positive compliance workshops, a video on the disclosure rules, poor and good practice examples and enforcement meant there was more than one way to deal with ongoing failures.
He said: “We think it is possible for all firms failing now to get it right by Q3 – the rules are clear and we don’t want to prejudge a future failure.”
The review revealed that so “egregious” were the failings discovered, one wealth manager and one adviser firm had already been referred to enforcement.
The FCA said poor disclosure was “widespread across the industry” but private banks and wealth managers had “performed poorer” than other firms in nearly all respects.
FCA director of supervision Clive Adamson said he was “disappointed” with the results of the 11-page review and added the results should be seen as “a wake-up call”.
He said: “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 advisers are clear with their customers on costs and services provided.
“We will be helping the industry again to understand our requirements and we expect them to respond.”
Further failings were identified in relation to the type of service they offer, independent or restricted, and what ongoing services they would provide.
Reaction round-up
Clive Gordon, head of investment advisers and platforms at the FCA, said: “Advisers haven’t engaged with the rules and the materials we have put out on good and bad practice. We feel we have been clear advisers should be able to comply with them. These failures are unacceptable.”
Rory Percival, investment advisers and platforms technical specialist at the FCA, said: “We produced a three-page fact sheet with key points to make it simple. We have engaged with the industry on how to communicate these charges effectively. The failures from advisers is on basic communications with their client and a failure to put the client at the heart of their business.”
Adviser view
Matthew Walne, director of Leicestershire-based Santorini Financial Planning, said: “I am proud of disclosing my fees and although I accept that some people may not accept what I charge, laying out charges in an upfront manner should be the norm. This is a case where a minority in the advisory world bend the rules and although private banks and wealth managers have been much less transparent, the FCA has taken a lowest-common-denominator approach, yet again.”
Key stats
58 per cent of firms failed to give clients clear upfront generic information on cost
50 per cent of firms failed to give clients clear confirmation on how much advice would cost them as individuals
58 per cent of firms failed to give additional information on charges
32 per cent of firms offering a restricted service were not being clear they were restricted
34 per cent of firms failed to give clients a clear explanation of the service they offered in return for an ongoing fee
