Regulation  

FCA refers one firm to enforcement in post-RDR review

The Financial Conduct Authority has referred one firm to enforcement for failing to meet the requirements of the Retail Distribution Review, its third thematic review revealed.

Earlier this year, FTAdviser revealed the FCA will be turning its attention to ongoing service as part of its third thematic review into the RDR.

The regulator’s review of retail investment advice, published today (16 December), is mainly positive, stating there has been a “material improvement” in the way firms disclose advice costs, their scope of service, and the nature of their services to clients.

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Almost all of the 110 firms it reviewed offered their clients a type of ongoing service in exchange for an ongoing adviser charge.

In around half of firms the regulator reviewed, over 90 per cent of their clients were paying to receive an ongoing service.

The regulator said: “This suggests firms have responded positively to the findings from the second cycle of our review and made use of the supporting materials we published. As a result, clients should be in a better position to understand the nature of firms’ services and the charges that apply.”

However, there could be further disclosure improvements, the regulator said. In particular, it remains concerned that some firms are failing to provide individual clients with clear disclosure, in cash terms, of the ongoing charges they will be paying for the firm’s ongoing service.

The FCA found 35 per cent of firms failed to disclose the total adviser charge for their ongoing services in cash terms relevant to the individual client. This normally applies when the firm is using a percentage based charging structure.

It added that as this was one of the main failings in both of the previous reviews, expressing disappointment that a significant proportion of firms continue to fail to disclose the ongoing adviser charge in cash terms for individual clients.

Of firms using an hourly rates charging structure, 57 per cent did not give an approximate time of how long each service would take.

Within these firms, hourly rates were often used for non-standard, complex or ad-hoc work, so the lack of clarity is likely to only affect a small proportion of their clients, the regulator said. However it reiterated that all charging methods in disclosure agreements should be clear for clients.

Some 23 per cent of firm use a price bracket to indicate the cost in their generic disclosure. The FCA said due to this lack of clarity, it can be difficult for clients to be clear about likely costs.

“Given ongoing services are central to the services many firms offer their clients, it is important that firms disclose these charges clearly. Firms should therefore consider how they communicate information on ongoing services to their clients and how effectively it is understood.”

However, one firm is still failing to meet the regulator’s disclosure demands.

“Given the importance of this area, following the third cycle of work, we have referred one firm – who we do not believe has sufficiently engaged with the changes the RDR requires – to our enforcement and financial crime division.”