While not prescriptive, Linda Smith, senior technical adviser of the Association of Professional Financial Advisers (Apfa), says the FCA has clear disclosure rules around how advisers explain charges to clients.
She says advisers must disclose charges upfront at the outset of the process using some form of price list. The specific amounts charged will be confirmed when this is evident and where charges are not in pounds and pence, illustrations should be provided to indicate real costs in a range of scenarios, according to Ms Smith.
She says: “Clients should therefore be clear on what they are paying for. Clear disclosure is key. Record keeping on the adviser’s part should evidence this disclosure.”
Initial disclosure of charges should be done by way of a generic disclosure document, which Keith Richards, chief executive of the Personal Finance Society, says is key in ensuring that potential clients have a clear understanding of the firm’s charging structure.
Mr Richards says a generic disclosure document should give clients an idea of the likely cost of advice at an early stage.
He says this should include information such as how a firm typically charges for advice (for example, a percentage of the amount invested, an hourly rate or a fixed fee), the level of the fees and importantly when the client would start to incur charges.
The adviser charge tariff should be explained verbally and then provided in writing.
Mr Richards says the FCA sees the initial generic disclosure document as an important enabler that allows clients to compare the cost of different advisers and shop around if they wish.
If a firm is charging a percentage of the amount invested Mr Richards says it is important it includes examples in cash terms as well as disclose that the fee would increase as the fund grows.
If it is charging an hourly rate Mr Richards says it must provide both an approximate indication of the number of hours that the provision of each service is likely to require and the basis on which the hours and/or rate may vary (if applicable).
Where a firm offers more than one option of calculating the fee within their charging structure then Mr Richards says it should make it clear what basis would be applied and when.
He says: “Client-specific adviser charges must be disclosed and agreed as soon as they are known and it is practicable.”
Gill Davidson, group regulatory director of Tenet, says it is important to actively engage with clients to ensure that the services, and the costs of those services, have met their requirements and were understood.
She says a method of achieving this may be through issuing Treating Customers Fairly questionnaires to your clients on a regular basis (at least every six months), or simply speaking to them and making a note of the conversation.
When meeting a client, Ms Davidson says you should make sure they understand everything that is explained to them by prompting with pertinent questions. She says it is vital to ensure they have a clear understanding of the services, guidance and information you are providing them with, and the associated costs.
Ms Davidson says: “It is advisable to keep a written, jointly-signed note of all client meetings if possible.
“When designing or reviewing your tariff, do take the time to test it against the FCA tool, which covers the basic requirements for clear disclosure from both a generic and individual client basis.”
Aileen Lynch, head of technical at Compliance First, agrees an adviser could question the client to ensure their understanding, and then they should get the client to sign a copy of their agreement which details what the charges and level of service are, and confirm that they have understood the charges.
