ConsolidatorOct 11 2016

FCA concerned about transferred client charges

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FCA concerned about transferred client charges

The Financial Conduct Authority has expressed concern about the treatment of lower-value clients in the advice consolidation process, Stephen Harper has said.

The chief executive of Attivo Group said the regulator appeared more interested in whether these clients were getting a good service than higher-value ones with more to invest.

Attivo has been one of the companies taking part in the FCA’s review of the consolidation process in the financial advice sector.

Mr Harper said he found the process “really interesting” and said it raised issues for the whole financial advice sector.

He said the FCA was keen to make sure ongoing service propositions actually involved a review of the suitability of advice.

Mr Harper said: “The hot potato, which is going to hit the industry, is the number of firms who may have to stop charging ongoing fees or refund fees to lower value clients where they cannot demonstrate that an ongoing service has been provided, and they have been more reactive than a proper service should have been.

“While the consolidator project is focused on consolidators, it reaches into other areas of the industry and this is one.

“If we are doing a review of a client and they don't want to do it, we will stop ongoing charges if we are unable to offer a genuine ongoing service and we have to refund any money to any clients.”

David Penny, managing director of Somerset-based Invest Southwest, said: "You could apply this to any activity in regulated advice.

"The lower value clients are likely to receive less attention. That is inevitable in our industry.

"There is so much consolidation taking place, not much of it is focused on the needs of the client, and lower value clients even more so."

Mr Harper also said his company had updated the contracts it uses during the consolidation process following the FCA’s review.

One of the issues which the review has thrown up has been the way clients are treated during the process, including bulk novation.

Last month FTAdviser reported that the FCA was considering strict new rules which could mean that until a new client agreement is in place, clients cannot be billed for ongoing services, even if there is no change to the service and charges.

Mr Harper said this was an issue for the industry as a whole, and he predicted that the FCA would ban bulk novation on asset purchase deals.

He said: “The industry in general has not been telling clients about fees before the deal happens but doing it afterwards.

“We accept that as a firm we had not always communicated the change and fees before the novation was actioned, but we did provide full disclosure verbally and in writing after the completion of the asset purchase acquisition, and we have changed our processes for all acquisitions going forward so we inform clients ahead of the deal about the fees they are paying and what they will pay going forward.

“We have updated all our contracts and given that we have been part of the [FCA review], we are probably one of the first in the industry to do that to take account of the new communication process.”

He added the FCA had told him it may not publish a report from its consolidator review.

The FCA said it was unable to comment.