There were several interesting points buried amongst the ironically not that well-communicated Financial Conduct Authority papers on communication and product disclosure review of literature published today (25 June).
Here are a few of the most pertinent for advisers:
1. Post-RDR work to be done.
After finding “very concerning” issues in its initial post Retail Distribution Review sweep of the market, the regulator reported that firms have materially improved their disclosures after their December 2014 review, although it noted that there remained areas for further improvement.
Consumer research suggested that consumers’ understanding of both adviser charges and the nature of advice is limited, with any weakness in consumer understanding meaning people do not appreciate the differences between independent and restricted advice, amongst other things.
“While we continue to encourage firms to do more to clearly explain the scope and cost of the investment advice provided, we recognise that there may be more we can do to help,” the FCA stated.
The Oxera literature review highlighted other disclosure solutions used internationally to help consumers compare different products and services.
One was the use of labels, such as the US Environment Protection Agency’s fuel efficiency label, a variation of this which could be used by advisers, according to the FCA.
The Smaller Business Practitioner Panel is currently looking at developing proposals for simple labels and to encourage a debate among stakeholders, the regulator has published two possible labels using a variety of the most common adviser charging structures, but which could be tailored to reflect other charging structures firms may operate.
2. Pounds and pence rather than percentages.
The FCA has been pressing for some time for charging structures to be communicated to clients up front and in writing and total charges must be disclosed and agreed as soon as they are known and it is practicable - and then presented at least illustratively in pounds and pence.
And this was once again brought up.
According to the Oxera report, the most commonly used number format in financial services products is the percentage, but despite the ubiquity it is not universally understood by consumers.
Furthermore, the overall cost of return of a product may depend on the compounding of regular percentage amounts, potentially adding more complexity. It cites several studies showing that charges and fees in absolute terms help consumers to better understand product features and pricing.
Again, looking across the pond for best practice examples, the US Consumer Financial Protection Bureau’s ‘Know Before You Owe’ initiative requires that mortgage providers give all costs and payments in dollars, in addition to the interest rate.
3. Regulator admits shortcomings.
In a rare moment of humility, the FCA opened its own communications up to scrutiny, inviting evidence that any information requirements in its handbook prevents or inhibits firms from effectively communicating important information to consumers.
“We have considered whether we can change any of our non-European Handbook disclosure provisions to improve their effectiveness,” read the paper, adding that it has identified sections that have not been as effective as first envisaged in terms of informing consumers, and therefore intend to consult on their potential deletion.
4. Improving the ombudsman.
The FCA raised the problem of the Financial Ombudsman Service receiving enquiries from consumers who are not looking to have a complaint investigated, but are trying to identify what to do when they have a query about a product or service that is not operating in line with their expectations.
In many cases, the most appropriate and efficient resolution could be delivered early by direct contact with the firm itself, often by frontline staff, so the regulator is looking to encourage providers to make themselves “easier, less daunting and less adversarial to the consumer”.
The FCA said it expects to publish a policy statement later this summer which will set out timescales for implementation of rules limiting the cost of post-contractual calls to firms, but in the meantime it suggested making it easier to navigate ‘contact us’ sections of websites.
5. Pension wake-up packs continue to be reviewed.
The FCA reiterated its conclusion at the end of last year that at-retirement communications needed to be changed to ensure clarity and simplicity for consumers, meaning there was a need to trial a new ‘wake-up pack’.
The paper said that given the potential for multiple pension pots and now a multitude of new options upon retirement, comparison would be “substantially easier” if communications and terminology were standardised.
“We are currently discussing with providers how they can work with us to behaviourally test new at-retirement communications. They will then be able to trial the information with customers and measure the impacts on our objectives,” read the document, adding that the regulator will consult on a further strengthening at-retirement communication rules in late 2016.
“We are keen to encourage providers, advisers and trade bodies to come together to agree and improve descriptions of key pension concepts and terms in a clear, non-technical and simple manner for use throughout customer literature,” the FCA stated.
peter.walker@ft.com
