Requirements for disclosing charges and services

According to the FCA, if you are unable to answer the questions below positively, you may not be meeting the requirements.

1) Can your clients understand your charging structure?

2) Do you disclose your initial and ongoing charges in cash terms?

3) If your charge is a percentage, do you provide cash examples?

4) If you charge an hourly rate do you provide indicative examples?

5) Do your clients receive your charging structure before you provide any advice services?

6) Where your initial charge for regular premium business is paid in instalments, have you made sure they are not open-ended but end when the initial charge is paid off?

The regulator says it is vital your clients understand what they will pay and how they will pay the charge.

If a firm charges a percentage for a lump sum investment, Chris Hannant, director general of the Association of Professional Financial Advisers, says it is a good idea to give a few scenarios based on different investment amounts, so that a client can see roughly how much they will have to pay for the service.

Mr Hannant says what is not acceptable is stating a minimum and maximum fee without any explanation of when a particular fee will apply.

Where a firm charges an hourly rate, Mr Hannant says clients feel happier knowing roughly how many hours they will be billed for and an estimated total cost for the service.

Dominic Rose, acquisitions and sales director of Bellpenny, says advisers need to disclose fees and charges at the first meeting with a client in clear and plain English and in monetary and percentage terms illustrated in a client agreement.

Jason Kirk, group head of compliance at SimplyBiz, says he recommends firms use a clearly worded client agreement and service proposition outlining whether they give independent or restricted advice.

Mr Kirk says these documents should also clearly state what firms charge for both initial and ongoing services.

Transparency is key when it comes to explaining charges and services, says Simon Thomas, head of policy at Tenet Group.

Mr Thomas says: “Fees and charges should be confirmed in writing and should be expressed in cash terms.

“If the exact cost is unknown, for example if advisers charge an hourly rate or their fee is based on the amount the client decides to invest, the fee agreement should include a firm indication of the expected cost including any liability to pay VAT.

“Initial advice and ongoing services must be described separately and clients must be clear about what is included in each.

“Of course if the fee changes, for example the work turns out to be more complex than originally envisaged, the client must be notified of this and the impact on the fee they could then expect to pay.”

Apfa’s Mr Hannant says advisers also need to clearly explain whether they are independent or restricted, and if the latter, they should explain the nature of their restriction.

He says advisers also need to be clear about what their ongoing services include, where relevant.

For example, Mr Hannant says advisers should check if the disclosure is clear about what any review involves.

He says advisers should check the disclosure documentation clearly describes that the ongoing service can be cancelled and how the client can do this.