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FCA could look ‘further’ at advice firms’ ongoing service

FCA could look ‘further’ at advice firms’ ongoing service
REUTERS/Toby Melville

The Financial Conduct Authority has said it may undertake “further cross-firm work” beyond its industry-wide consumer duty and intervene to monitor the advice sectors’ ongoing service to clients. 

In a letter sent to chief executives of advice firms on Friday (December 2) and seen by FTAdviser, the City watchdog said it was “concerned” that advisers were not adequately considering the relevance, nature and costs of their services for all their clients and that it would “develop interventions if necessary”.

The regulator said it was concerned customers were not being provided with all the information regarding their investments, which is required under Mifid II and through suitability reports.

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While the implementation of the new consumer duty - set to come into force next July - will be monitored across all regulated firms, the FCA said it may look to explore this at a sector level.

The regulator added: “This may include assessment of whether consumers are paying for ongoing services that do not meet their needs, is not delivered as per the terms of the agreement or is too costly when assessed against the content and quality.”

The letter, signed by the FCA’s director of consumer investments Therese Chambers, told advice firm bosses “many firms” will require “a significant shift in culture and behaviour” ahead of the incoming consumer duty.

Culture, she said, has been a “key root cause of past major conduct failings”. 

“We expect the consumer duty will be particularly relevant to ongoing services provided by financial adviser firms,” said Chambers.

The FCA is keen to see a move towards cultures which consistently focus on consumer outcomes and put customers in a position where they can act and make decisions in their interests.

Last month, Emily Shepperd, chief operating officer and executive director of authorisations at the FCA, gave a speech on how the culture of financial services organisations is often depicted in binary terms, “either dull and Jurassic or reckless and scandalous".

She discussed the importance of senior people not imposing an inherited culture that can create barriers to progress, and stated that the FCA expects senior leaders to nurture healthy cultures in the firms they lead. 

However, director at the Lang Cat, Mike Barrett, said the letter’s focus on ongoing service was “a big shot across the bows” for advice firms.

“The FCA's own data shows over 70 per cent of the advice sector’s revenue is from ongoing fees,” he added.

The letter also referenced a “separate communication” to be sent “in the coming months” which will further explain the impact of the new consumer duty on financial adviser and intermediaries firms.

The regulator said this second letter will include some examples of how the consumer duty outcomes will apply to firms in practice.