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Alan Hughes: The FCA pulls few punches on disclosure failings


The FCA has published its third thematic review paper on the implementation of the RDR. The paper, TR 14/6, focuses on similar issues to the first thematic review paper published last year, namely the disclosure of information on adviser charges and services.

The FCA pulls few punches – it is disappointed in firms’ failure to get to grips with this element of the RDR and to clearly disclose information relating to their charges and services. There is a clear and explicit warning here. The FCA will come down very hard on any firms that continue to fail to meet its disclosure obligations and enforcement action is entirely possible. Every firm should take this very seriously and make sure its own disclosure documents deal with all the issues raised in TR14/6 and meet the requirements of the COBS rules.

The key failings

Given the clarity with which the FCA set out the position in TR14/6, firms which continue to engage in practices which TR14/6 makes clear are not acceptable can expect to get pretty short shrift from the regulator. With that in mind, the key failings identified in TR14/6 are:

  • Firms are not meeting their obligations under COBS 6.1A.17R to disclose their charging structure to clients in writing and in good time before making a personal recommendation (or providing related services).

This rule is pretty clear. It requires a firm to give clients generic information about their charging structure as early as possible, which means at or before the first meeting. The principle behind this is to give clients a clear idea of how much advice may cost as early as possible. If you charge a percentage give real terms cash examples or if you charge hourly rates give an indication of how many hours each service is likely to take.

While firms may not believe that clients will use this information to shop around, which is the ultimate objective of the FCA, the requirements are clear and should be complied with. 

  • Firms are then not meeting their obligation under COBS 6.1A.24R to disclose the specific charges that a client is likely to incur, in cash terms, for the specific services that the client is going to receive.

The rules state that this disclosure must take place “as early as is practicable” and it is clear that the FCA consider that this means the disclosure must take place before the client becomes committed to paying any fees.

  • Firms are failing to make it clear that ongoing charges can fluctuate and precisely when charges may be incurred.

The former should be easy enough to do and it is important that any client understands the point at which a charge is incurred. This is simply good business practice and will avoid disputes arising with clients over fees.

  • Firms are failing to accurately disclose the status of their service (ie independent or restricted) and if it is restricted to explain the nature of the restriction clearly.

Again the FCA consider that this is important to allow consumers to fully understand the service offered and whether it meets their needs. Whilst firms may again have doubts about the level of client engagement on this issue, there is now enough information out there to allow firms to meet their obligations in relation to describing their service accurately and they really just need to get on with it.

  • Finally, firms are not giving a clear explanation of the ongoing services that they will provide and the right of the client to cancel those at any time.

The FCA also stated that firms cannot always demonstrate that they have the systems in place to provide the ongoing services that they promise. The FCA may well suspect that firms want to charge an ongoing fee, are aware that they must provide an ongoing service to do so but are seeking to do the minimum necessary to justify that ongoing fee.

That will not be acceptable and I expect that the FCA may focus more on this in the future. Firms need to take a pretty hard look at their ongoing service offer and make sure that it measures up and is demonstrably deliverable and in fact delivered.

The FCA message

All in all, while the message from the FCA in TR14/6 is pretty firm, there is really nothing for most firms to be afraid of. With a little thought and analysis, these requirements should not be difficult to meet. My experience of dealing with advisers’ client terms is that they can quickly get very complex if not enough thought is given at the outset to how they should be structured. By keeping it as simple as possible, you are likely to both come up with a more compelling offer to clients and find it much easier to satisfy the regulator’s requirements.

If that carrot is not enough, the large stick being waved in TR14/6 by the FCA should provide further incentive to firms to ensure that they get this right.

Alan Hughes is partner at Foot Anstey



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