The Financial Conduct Authority has turned its attention to emerging advice business models and the ongoing services being provided by advisers as part of its third thematic review into the Retail Distribution Review.
The FCA has started contacting firms who have been selected to take part in its third thematic review to assess how firms have implemented the RDR.
In a communication sent to firms and seen by FTAdviser, the FCA says it is using the review as an opportunity to examine “developing business models” and to understand more about firms’ service propositions, “particularly their ongoing services where these are provided”.
It states: “We are gathering this information on ongoing services to help us understand the processes that have been adopted by firms and how this may impact consumers.
“It is important that firms do not interpret these questions as FCA guidance or requirements. It is not our intention to influence firm behaviour by asking these questions and in many instances there is no correct answer that we are looking for firms to provide.”
The results of the second review, published in April, revealed the regulator is losing patience with advisers on fee disclosure. The FCA said that firms will be subject to enforcement action unless they strive to improve quickly.
The regulator also found that a number of firms have continued to fail to communicate what restrictions they operate within if they are not independent - or even to explicitly state that are restricted at all.
The FCA found similar failings in the first of its three reviews, published in July 2013.
The regulator says the third review will include a repeat of previous assessments and will also look at firms’ disclosure of adviser charging structures and their scope of service.
The specific objective of this project is to assess the actions firms have taken to meet the requirements of the RDR in respect of adviser charging and their scope of service, the regulator said.
James Dingwall, chief executive of compliance firm Thistle Initiatives, said: “One of the issues around the guidance on adviser charging and scope of service is the FCA creates a lot of noise but doesn’t necessarily make it easy for firm’s just to read the rules and evidence that it is complying with them.
“One of the best of outcomes of this review would be for the FCA to provide examples of good and bad practice and a clear unambiguous checklist of the requirements firms should be able to assess themselves against.
“The FCA should concentrate on making compliance easier to understand, rather than issuing paper after paper and no definitive answer... what [the FCA would] want to see.”
Rebecca Prestage, head of policy at the Consulting Consortium, said: “From the tone [of the FCA’s communication] they are going to be a bit more hard-lined now as they have allowed firms to get to grips with this and have been patient.
“They issued their findings of the last reviews and concern is that firms are still not disclosing [fees and charges].
“Going back a few years, firms thought charging would be the easy bit and looking at independent/restricted and getting qualified would be hard. People have not spent enough time on their fees and charging.
“The FCA previously said they will take regulatory action and I would not be surprised to see them make examples of firms.”
Neil Walkling, RDR specialist at consultancy Bovill, said: “I am not surprised the FCA is looking at [ongoing service] as post-RDR advisers can’t rely on commission anymore and they are now more reliant on income from ongoing service in order to have a successful business.”
Mr Walkling added that four things spring to mind when reading the FCA’s letter to firms.
He said: “Are firms delivering some sort of real/tangible ongoing service that justifies charges being levied? Do firms have effective systems in place to deliver ongoing service? What are the incentives for advisers? Are suitability checks in place?”
Matt Timmins, joint managing director of SimplyBiz, added: “I think it is a real positive that the FCA are taking the time to understand more about advisers’ businesses and the ways in which they help clients every single day.
“Advisers perform many important tasks for clients each and every day that are part of their ongoing service but not necessarily understood and appreciated by the client and the regulator.
“This review should provide the FCA with a greater understanding about just how much work and effort going into supporting clients on an on-going basis.”
