The Financial Conduct Authority has brought the widespread failures by advisers to disclose the nature and fee structure of their service upon itself by neglecting consumer education on major rule changes last year, according to one IFA.
Earlier this month, the regulator revealed it had found disclosure shortcomings among almost three-quarters of advisers with regards to their fee structures and whether they were independent or restricted.
Restricted advisers often failed to sufficiently describe the nature of their restrictions, and the regulator said two firms in particular were likely to be referred to the FCA’s enforcement division in a toughening of its stance to disclosure failings.
However, Kim Barrett, managing director of Hertfordshire IFA Barretts Financial Solutions, claims the regulator could have mitigated this in advance with more publicity aimed at consumers which explained the changes brought in by the Retail Distribution Review.
Prior to the rule changes last year there had been fears among many in the sector that clients that the end of commission and requirement for advisers to levy fees separately from product costs would prompt an exodus of clients who had perceived their advice services as ‘free’.
In FTAdviser’s weekly Friday Interview, to be published later today (25 April), Mr Barrett says even now fears over the reaction of clients is causing some advisers to be less than forthcoming on their fees, which is behind the poor findings in the FCA review.
“What has appalled me is you have had a fundamental change in the way financial service is dispensed but the regulator isn’t actively advertising it. They rely on the industry to [inform] the public.
“Advisers are scared to death of telling their clients. Had the regulator been a little more adept at telling people what’s going on they would have outed the advisers that were trying it on.”
Claiming to be one of the 27 per cent of advisers who successfully disclose their payment structure, Mr Barrett says that other advisers sometimes charge significantly more for providing less service than before.
For example, Barretts Financial Solutions does its own fund management in-house and charges 0.75 per cent ongoing for the whole advice and management package.
However, he says some other firms charge up to 1 per cent and yet also outsource their investments to a third party which itself levies a separate charge, meaning clients can be paying up to 2.5 per cent.
The full interview with Mr Barrett will be published later today.
