Regulation 

FCA rules restricted advisers give more suitable advice

FCA rules restricted advisers give more suitable advice

Restricted firms and network members are doing better at giving suitable advice and making clear how much they charge for their services, the Financial Conduct Authority’s assessing suitability review has found.

Over the past year the regulator reviewed 1,142 individual pieces of advice given by 656 firms as part of its suitability review.

Overall it found firms are providing suitable advice but it found room for improvement in disclosure – particularly on charges.

But the results showed independent directly authorised firms are likely to do worse at both suitability and disclosure than restricted firms and network members.

As a result the FCA said these firms will be the focus of a communication programme it will be rolling out this year that will spell out what good and bad advice and disclosure processes look like.

The results found 97 per cent of restricted firms were providing suitable advice while 90.8 per cent of independent firms were doing so.

There was a similar gap with network membership, where 91.4 per cent of directly authorised firms were providing suitable advice and 97.2 per cent of network members were doing so.

The gaps were even larger when it came to disclosure, with 75 per cent of restricted firms offering acceptable disclosure and only 39.5 per cent of independent firms doing this.

Meanwhile 69 per cent of network members were offering acceptable disclosure while this was the case with only 46 per cent of directly authorised firms.

Addressing the disparity on suitability, the FCA said: “Given the relatively high level of suitable advice overall, and the relatively small differences between the above categories, we are not concerned by the differences identified.”

But when it came to disclosure, the regulator added: “The statistically significant differences identified will enable us to target our communication programme to focus on the types of firms which deliver lower levels of acceptable disclosure.

“Any further communications material we produce, including examples of good and poor practice, will have these specific firm types in mind.

“In particular, we recognise that smaller firms may have less regulatory resources and will bear this in mind when designing any targeted communications.”

When it came to firm size, the FCA also found bigger firms tended to do better when it came to giving suitable advice and explaining how muxch they charge.

On suitability, firms with between one and two advisers had 91.8 per cent suitable advice compared to 96.2 per cent for firms with 25 advisers or more.

But mid-sized firms – with between three and 24 advisers – did worst, with 89.3 per cent suitable advice.

This was echoed in disclosure, where firms with between one and two advisers had 42.2 per cent acceptable disclosure compared to 63.9 per cent for firms with 25 advisers or more.

Again, mid-sized firms did worse, with 41.8 per cent acceptable disclosure.

Chartered Financial Planner Richard Ross, who works at Norwich-based Chadwicks, said the low levels of acceptable disclosure found within independent firms suggested a failure of communication from the FCA.

He said: "Similarly the issue highlighted around the complexity/length of suitability reports points to a bigger issue – a general confusion over what is required by the FCA and the amount of protection from future claims afforded by the contents of a suitability report.

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