Financial Conduct Authority  

FCA slams expensive advice

FCA slams expensive advice

The Financial Conduct Authority has warned of the detriment caused by "poor and expensive" services from financial advisers in the retail investments sector.

In the annual publication of its views on each financial sector published today (January 10), the regulator warned consumers could "struggle to assess" the cost of advice and were vulnerable to overpaying for services which they may not need.

The FCA said it remained concerned about the availability of suitable value-for-money advice for consumers with small pots to invest, warning high charges at any point in the "value chain" could reduce consumer returns.

The city watchdog said it found the number of financial advisers willing to offer advice on small investment pots to be limited, creating a risk of some consumers overpaying for advice they do not need.

It added that others may make investments without advice, which could result in investment in unsuitable products.

Simultaneously the regulator highlighted unsuitable investments in complex and risky products as an area of focus.

The FCA stated: "These products include contracts for difference, spreadbetting, structured products and investment-based crowdfunding.

"The complexity of these products means that consumers may find it difficult to assess the risks involved in investing in them.

"This means they frequently overestimate potential returns and underestimate the potential for capital loss."

The regulator said inappropriate sales tactics, such as the use of headline grabbing return figures or mis-categorisation of retail investors as professional investors, could result in consumers investing in unsuitable products.

The FCA said these areas of harm in the retail investments sector resulted in "conflicts of interest, poor treatment of clients, a lack of comparability across products, and sometimes misleading or confusing communications".

The regulator said there had been an increase in scams through high risk unsuitable products and advised it was investigating a number of wealth managers for losses suffered by investors relating to a variety of scams in this area. 

Meanwhile the FCA warned firms against falsely advertising unregulated products as being regulated by the city watchdog. 

In a letter addressed to the chief executives of all FCA regulated firms published yesterday (January 9), FCA chief executive Andrew Bailey reminded firms of their responsibilities relating to the use of financial promotions, defined by Mr Bailey as an invitation or inducement to engage in investment activity.

Mr Bailey said the FCA had identified some regulated firms, which undertook both regulated and unregulated business, were issuing financial promotions that falsely implied all of their activities were regulated by the FCA or the Prudential Regulation Authority.

In August, the FCA had warned firms not to try and get around the new restrictions on selling contracts for difference, imposed by European Securities & Markets Authority, to retail clients.

rachel.addison@ft.com