The FCA will monitor that the firm is making the appropriate cost and service disclosures to clients, says Keith Richards, chief executive of the Personal Finance Society.
Mr Richards says the FCA will also consider the cost and benefit of advice. i.e. if the cost of advice is £1,000 and a client has just £5,000 to invest then the cost of advice is likely to outweigh any benefit of advice.
He says: “Regulatory ramifications will usually result from a continued failure to consider the impact of costs and charges on a client’s investments and make appropriate recommendations.
“Regulatory fairness is closely aligned with good consumer outcomes and will ultimately be determined by whether clients had sufficient opportunity to understand your specific charges against specified services.”
The FCA will not, however, prescribe what reaqsonable advice costs should be.
It is the FCA who acts as a monitor of authorised firms, but Gill Davidson, group regulatory director of Tenet, says the initial responsibility at adviser level rests with the principal and whoever is responsible for compliance at the firm.
In all cases Ms Davidson says the charge must be consistent with the firm’s tariff and client agreement.
She says this does not, however, address whether or not the cost of the service is fair, which remains, unless clearly excessive, a value judgement for the client and a commercial competitiveness decision for the firm.
The ramifications of an adviser is failing to charge their clients fairly is unsuitable outcomes for consumers and consequent complaints, Ms Davidson says resulting in reputational damage and impact upon the cost and availability of professional indemnity insurance without which the firm cannot trade.
Accordingly, Ms Davidson says a robust compliance monitoring policy is essential to ensure that advisers consistently act in their clients’ best interests.
She says if a firm fails in its obligations, the FCA can issue sanctions and has the right to ban them from operating in extreme cases.
If a client subsequently considers that they have been unfairly charged Linda Smith, senior technical adviser of the Association of Professional Financial Advisers (Apfa), points out they also have recourse to the Financial Ombudsman Service.
