The regulator must take steps to cut the volume of disclosures required by advisers if it wants to lessen the information overload on consumers, according to the Association of Professional Financial Advisers.
The industry body’s response to the Financial Conduct Authority’s discussion paper on consumer communications stated that “the sheer volume of rules” governing disclosure by advisers to clients adds to the cost of compliance, leads to higher costs of advice for consumers and ultimately exacerbates the ‘advice gap’.
Alongside the paper, the regulator also published research by Oxera Consulting, who it commissioned to undertake a literature review to identify good disclosure practice and practical examples of where behavioural insights have been used to improve disclosure.
Oxera’s research found that “layering” information so that the consumer receives a summary disclosure of the most important information upfront, with clear signposts to other additional information, was particularly effective at enhancing consumer engagement.
Where not prohibited by legislation, a layered approach could make engagement with the terms and conditions less onerous for all consumers, Oxera said, and the regulator is currently seeing if this is possible.
Apfa welcomed the regulator’s suggestion that it could develop an indication of priority in its proposed ‘layering’ approach.
Chris Hannant, director general of Apfa, explained that the broader regulatory environment, combined with fear of how complaints are assessed by the Financial Ombudsman Service, gives rise to the lengthy paperwork clients receive.
“We look forward to working with the FCA, the advice community and others to improve consumer communications especially in terms of developing the FCA’s layering concept and how this may apply to suitability reports.
“However, to encourage advisers in practice to adopt new practices, it is important that they have confidence in the approach of the ombudsman in assessing complaints.”
Published at the end of June, the FCA’s paper stated that consumers’ ability to make informed decisions is often hindered by information overload, which is a symptom of a ‘tick-box’ approach to communication.
The regulator found this as it investigated the difference between its expectations of firms and firms’ understanding of what is required of them.
The paper welcomed any evidence that any information requirements in the FCA 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,” stated the regulator, adding that it 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.
It also focused on the failings of terms and conditions, which previous work found that almost no one claimed to read and the few that did were left none the wiser.
The feedback period for the discussion paper closed today (25 September).