The FCA has published its findings on adviser charging following its review of 113 firms in October 2013 in TR14/6, Supervising Retail Investment Firms: Being Clear About Adviser Charges and Services.
The message is clearly that the FCA is not happy. It states:
“…the level of non-compliance we identified and the failure of firms to meet their regulatory requirements are unacceptable”.
It also found that despite the feedback it published in July 2013, “73 per cent of firms failed to provide the required generic information on how they charge for advice and/or failed to clearly confirm the specific cost of advice to their individual clients in a timely manner”. So it is losing patience.
Annex two of the document gives more detail of its findings. Some are areas that it highlighted in the first review but there are few new nuances that it has highlighted.
- If an indicative hourly rate is stated, confirmation must be given as to when this may vary
- If a firm provides more than one option of calculating a fee, the disclosure documents need to make it clear which basis would apply and when
- The need to confirm that where an ongoing adviser charge is based upon a percentage fee structure, that the fee would increase as the fund grows
- The need to confirm when the client would start to incur charges.
An area which we see common shortfalls in a client file reviews is the lack of confirming the client specific charge in pounds and pence which is ‘as soon as practicable’.
To be fair, many financial planning firms use either a fee agreement or letter of engagement which confirms this but there are still many firms which are relying upon meeting this requirement by confirming it in the pre-sale suitability report. When we asked FCA technical specialist Rory Percival at the Association of Professional Compliance Consultants whether this would be acceptable, Percival replied that the firm could be challenged as to whether this met the requirement of ‘as soon as practicable’.
Advisers will then say that they cannot provide the client with a definitive idea of costs when they charge a percentage fee of assets until they have obtained details of the clients existing plans. The answer to this then is that as long as the client is not being charged for work that they do not know the definitive cost of, this is fine.
Once the adviser does have the information, they can confirm the specific charge in pounds and pence to the client, confirming, of course, that the figure may change if the recommendation is to transfer to a new provider when the fund value is likely to change.
Meeting the standards
The FCA has confirmed that it will be looking at this area again before the end of the year. If you do nothing else this quarter, we would urge
you to once again compare your firm’s disclosure documents against the FCA findings to make sure you are meeting the standards it expects.
We have updated the original FCA Fact sheet questions which they published in July 2013 with the additional points raised in this review. Use this to help evidence your review, even if you are confident that all aspects are being met.
Mel Holman is a compliance consultant at Compliance and Training Solutions