Tim Morris, IFA at Russell & Co Financial Advisers, agreed the regulator must focus on CMC fees as “a matter of urgency”.
He added: “More so than adviser fees, even if these are still in need of further reform. Thankfully, it’s safe to say that no adviser – certainly post the Retail Distribution Review – will charge anywhere near one-third of a client’s funds.”
Last week, the FCA warned in a ‘Dear CEO’ letter many CMCs still had a poor attitude towards their regulatory obligations.
One of the areas the watchdog, which assumed regulatory control of the industry last year, raised concerns about was poor disclosure of pre-contractual information about fees.
Darren Cooke, chartered financial planner at Red Circle Financial Planning, warned the fees of some CMCs were “frankly outrageous”.
Mr Cooke said: “It is an area that certainly needs tighter controls in terms of fees and I would also support moves to prevent CMCs cold-calling former clients of a failed investment, no matter how they obtain their details.”
Alan Chan, director at IFS Wealth & Pensions, said a fee cap on CMC charges was a sensible proposal.
Mr Chan said: “I think alongside this the FCA outlawed contingent charging for CMC services much like for pension transfers.
“Currently the ‘no win, no commission’ arrangement encourages bogus claims because there is nothing to lose and all to gain by sending out generic complaint letters.
“They are only paid on a successful claim, which means there is a heavy element of cross-subsidy among clients, which is why their final commission is such a high percentage.
“Clients should be required to pay a fee for their services regardless of a ‘win’ or not. It’s the only way to foster a professional culture in the CMC world.”
Change needed at the FSCS
Other suggestions for reform included the FSCS taking a more proactive approach when companies went bust.
Mr Milton said: “The FSCS could ask the administrators for a list of the clients and simply be in touch about the claim from that point on.
“Or at least, as the FSCS knows when it is going to accept the claims, the scheme could write to those consumers affected, rather than letting the CMCs circle around customers.”
An FSCS spokesperson told Financial Adviser that, in the cases of larger failures and where it can, the lifeboat body explores the possibility of contacting all customers of the failing business at the start of the compensation process.
The spokesperson said: “This is often carried out through the insolvency practitioner.
“Where it is not possible to contact customers up front in a reasonable time period, we may decide to start to assess claims to reduce wait times and provide a good customer journey.”