In a 21-page paper published today (18 May) the Financial Conduct Authority revealed the results of their assessing suitability review.
Here are the five key things that the regulator learnt from looking at the type of advice you offer and what you are expected to do with the watchdog's findings.
1) Vast majority of advisers do the right thing
The FCA’s review assessed 1,142 individual pieces of advice given by 656 firms against the suitability and disclosure rules in the Conduct of Business sourcebook.
The regulator found the vast majority of advisers are being open, honest and offering the right advice to their clients. In 93.1 per cent of cases, the sector was found to provide suitable advice.
However in 4.3 per cent of cases the intermediaries that took part in the review provided unsuitable advice and in 2.5 per cent of cases the sector provided unclear advice.
2) Half fail to clearly spell out charges
The regulator found 52.9 per cent of advisers “provide acceptable disclosure” however 41.7 per cent of intermediaries fell short of what the watchdog wanted to see.
The main area where the regulator uncovered “unacceptable disclosure” was the initial spelling out of an hourly charging structure where many firms gave no indication of long each service was likely to take.
The regulator was also critical of firms using charging structures with a wide range.
The FCA stated: “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.”
3) You like to talk to the regulator
According to the FCA “one of the opportunities presented by the review was that it enabled us to have direct contact with a large number of financial advisers.”
To improve accessibility for the firms involved in the review the City watchdog set up a dedicated email inbox and phone line and encouraged firms to use them where they had any queries or wanted to know more about what the FCA was doing.
Almost two thirds of the advice firms that took part in the review took the regulator up on their offer of a chat.
The FCA stated: “We were encouraged that the firms involved were very engaged with the review, as demonstrated by the phone line receiving in excess of 1,000 calls from approximately 450 firms between April and September.”
4) Regulator won’t reveal what good looks like - yet
The FCA’s suitability report focuses on the results of the review and does not provide any examples of good and poor practice.
According to the watchdog this is because the report signifies the beginning of a communication programme which will run over the course of 2017 and into 2018.
This programme will see the regulator share more detail of their findings, including communicating examples of good and poor practice.
The FCA stated: “Having this on-going and developing communication approach will allow us to be more interactive and to use a variety of different methods to communicate including written publications, digital media and speeches.
“We will also build it into our future Live and Local programme of events.”
5) What you must do next
The FCA stated it expects firms to consider the results, particularly those areas where it has flagged continuing concern, and consider whether there are any areas on which they can improve.
The regulator will repeat this review in 2019 and measure how the sector has bucked up their ideas when it comes to spelling out how much it costs to get advice.
According to the FCA the review in two years time will not only look at suitability of advice and compliance with disclosure rules, but also compliance with any new relevant rules, including those under Mifid II.
emma.hughes@ft.com
