This morning (18 May) the FCA has published the results of its review into suitability, which began in April 2016 and involved assessing 1,142 individual pieces of advice given by 656 firms.
The regulator said the results on suitability were “encouraging” and demonstrated the industry is, in the main, getting this right.
In fact the FCA revealed it found several examples of firms “going beyond” simply complying with their rules
The study found 93.1 per cent of advice was suitable while 2.5 per cent was unclear and only 4.3 per cent was unsuitable.
But while the level of unsuitable advice was low, the FCA found there were issues with firms not considering the limits of the risk profiling tool they were using.
The review also found issues with replacement business, where firms were recommending that clients give up valuable guarantees without good reason or where the additional costs appeared to outweigh the benefits of the recommended solution.
The regulator also found issues with disclosure.
While 52.9 per cent of firms were providing an acceptable level of disclosure, the regulator stated 41.7 per cent were "unacceptable" when it came to spelling out how much they charge and what services they provide.
The FCA found that firms were broadly meeting the rules around product disclosure and the information required for suitability reports – although some reports were too long or complex.
The main issue was in the area of charging structures, with firms using hourly charging structures not providing an estimate of how long each service would take and firms using charging structures with a wide range.
The FCA said: “These are persistent issues, previously highlighted during the three stage Retail Distribution Review thematic review completed in 2014.
“We are disappointed that this continues to be an issue.
“We consider that disclosure has an important role to play in supporting customers to make informed decisions about their financial affairs.
“Firms must ensure that their disclosure documents accurately reflect the services they provide and the associated costs.”
The FCA said firms should consider these findings and consider areas where they can improve.
Alan Turton, managing director of Leicester-based Rowley Turton, said his firm had not taken part in the review but questioned the findings on the way advisers reveal the cost of their services.
He said: “The issue the FCA needs to address here is that until we know what advice needs to be given we cannot assess what the charge is likely to be.
“Some people charge an hourly rate but we prefer to agree a set fee with the client.
“We share offices with a firm of chartered accountants and they are moving away from an hourly rate to agreed fees because clients were failing to ring them with queries when they should because they knew it would be added to the bill.”
The report produced today failed to include examples of good and poor practice among advice firms but the FCA said it will start a communication programme through 2017 and 2018 focusing on disclosure, replacement business and risk profiling.
The FCA also said it would repeat this review of the suitability of advice given to consumers in 2019 to find out how the industry has responded to the findings published today.
damian.fantato@ft.com
