Advisers who have changed their proposition from independent to restricted or vice versa need to disclose this to their clients “as soon as possible” if clients are paying for an ongoing service, the Financial Conduct Authority has confirmed.
Following the Retail Distribution Review, a number of firms have reassessed their proposition, and now offer restricted advice when previously they offered independent advice.
The FCA has clarified that if a client is not paying an on-going charge, then advisers only need to tell them their proposition has changed at their next meeting. If clients are paying an on-going fee, advisers need to tell them as soon as possible.
A FCA spokesperson said: “Where an up-front fee has been paid, for an ongoing service, we would expect a firm to treat customers fairly and make clear, as soon as possible, any changes to the services agreed.”
However, FTAdviser understands that this issue did not come up in the FCA’s second RDR implementation thematic review, published earlier this week.
On Monday (7 April), the FCA revealed in its review that a number of firms are continuing 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 that 31 per cent of firms offering a ‘restricted’ service were not being clear they were ‘restricted’ or the nature of the restriction and 34 per cent of firms failed to give clients a clear explanation of the service they offer in return for an ongoing fee and/or their right to cancel this service.
The review also revealed advisers do not have to tell clients they are restricted until the actual client meeting, meaning that a restricted adviser does not have to use the word restricted on their website or advertising material.
A FCA spokesman told FTAdviser: “How firms are disclosing that they are restricted and the nature of any restriction is clearly an area that the FCA is keeping an eye on.
“Our latest thematic review found that 31 per cent of firms weren’t getting it right and we’ll be repeating the research later in the year.”
Julian Pruggmayer, IFA for West Midlands-based Financial Risk Management, said: “Sadly, and this is why we have regulation, there are people in this industry who will tell clients whatever is necessary, or won’t, in order to make a sale.
“If the FCA thinks everyone is being that open and honest in this industry then they are regulating with their eyes shut. If everyone is that honest then why do we need regulation in the first place?”
