Complex adviser charges and expensive pensions: FCA outlines key risks for 2016/17

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The FCA has highlighted adviser charging structures and high cost pensions as key risks it will address over the coming year.

In the regulator’s 2016/17 business plan, published earlier this week, it outlines its priorities in areas including pensions, crime, advice and technology.

It says advice is “more important than ever” but warns “complex charging structures and poor transparency make it harder for consumers to compare products”. It adds consumers may be turning to execution-only products because of the perceived high cost of financial advice.

On the major risks in pensions, the FCA lists high costs and uncapped fees as well as consumers investing in alternative products. It adds continuing pension reform and an ageing society means consumer choices through retirement are becoming “more complex and more significant”.

Rapid advances in technology also represent a risk, as well as an opportunity to boost efficiency, the regulator says.

It says firms need to focus on infrastructure and culture to make sure customers and businesses are not hit by risks such as cybercrime, a lack of protection of information and certain groups being excluded from new technology.

Poor “technical resilience” and IT understanding at senior levels poses conduct and even systemic risk, the regulator warns.

In addition, the FCA says despite the introduction of the RDR, conflicts of interest are still driving risks. It particularly notes the role of vertically integrated firms.

It says: “Where a firm provides a range of different client services, playing multiple roles with multiple clients, that could lead it to further its own interests rather than acting in the best interests of clients.”

The FCA’s budget is set to increase by 8 per cent to £481.6m.

Of this, financial services firms will pay £469.8m in regulatory fees, thanks to a £49.6m rebate from financial penalties. The Treasury is paid the amounts levied in regulatory fines less retained enforcement costs.

The FCA is proposing that £133m, or 28 per cent of the budget, will fall on investment advisers and mortgage and general insurance brokers.

Banks and mortgage lenders are set to foot around £128m of the regulator’s costs for the year, while insurers are expected to pay around £60m.