Compliance service providers have defended their template letters after the FCA’s recent FCA suitability review found more than four in 10 advisers failed to disclose charges adequately.
Many of these advisory firms will have used templates provided by large compliance providers, such as, Threesixty, SimplyBiz and Bankhall.
Despite such large number of advisers failing disclosure tests, these firms say feedback from the regulator did not indicate that there was a problem with the advice compliance services provided.
Instead they say problems emerged from the way some individual advice firms were using their templates.
However, Bankhall says it is looking to redesign its disclosure templates “to make them more customer friendly” in light of the review.
Sesame Bankhall head of compliance Carl Wallis says: “These disclosure templates can be quite dry. I think there is a mindset among some advisers that if a template contains information on three different fee structures, then they should include all this information, even if it’s not relevant to the firm’s practices.”
He adds: “It’s clear that at the initial disclosure stage these documents should be a way of promoting a firm’s services. All the information should be simple to find and easy to understand without the need for any further explanation.”
Threesixty compliance director, Russell Facer says: “In some cases advisers were using these templates but not tailoring them to reflect their own services.”
For example, there may be information on different fee structures but no clarity on which is likely to apply in this particular case.
Facer says problems can also arise if firms quote an hourly rate, but don’t indicate how many hours a specific task or project is likely to take – or include tiered percentage charges without also expressing these fees in pounds and pence.
There are also concerns that there may still be a lack of confidence among some advisers about being upfront about the value of advice, and what this costs.
The FCA has said many of the problems it encountered involved the initial disclosure stage. It is understood that one in three advisers failed to disclose charges adequately at this stage.
The regulator will be sharing examples of good and bad practice with individual firms – and some compliance providers – in the near future, in a bid to improve standards.
But many advisers are still awaiting the regulator’s next moves on this issue. Some said they have already incorporated feedback received through their firms, but others said they are still waiting for more clarity from the regulator on the way forward.
Facer adds: “This isn’t a complicated problem. Where advisers have failed to meet disclosure standards, it is fairly straightforward to rectify the problem.”
Former FCA technical specialist Rory Percival says: “Frankly this is a high failure rate, particularly at the initial disclosure stage.
“All advisers should be looking again at how they initially communicate information to clients on charges and services.”
Percival says templates can provide a useful framework for advisers to use – but further guidance may need to be given on how firms tailor these to reflect their own practices and the client’s individual circumstances.
But there have been concerns among advisers about whether the review accurately reflects widespread poor practice by IFAs.
West Riding Personal Financial Solutions managing director Neil Liversidge – who asked to be included in the review – says that initially the FCA found his firm’s disclosure was unsuitable, but this was overturned after he challenged the verdict.
He says: “We were completely upfront about our charging, listing the £695 advice fee, the 1% implementation cost plus 0.75% ongoing charge in the documents sent to clients. Their main objection seemed to be that this information wasn’t ‘all together’, despite being included on consecutive pages of the same document.
“I think any prospective client would be perfectly clear about what our costs are. This makes me wonder whether this many advisers are really failing to disclose costs properly.”
Liversidge says this issue could be resolved if the regulator had one template on costs that all advisers had to use, regardless of the size of the firm.
The FCA reviewed more than 1,000 pieces of individual advice. It published findings in May, which showed that 93.1 per cent of the advice it reviewed was suitable.
However, 41.7 per cent of advisers breached disclosure rules, particularly those relating to costs, charges and services. More than 100 advisers have challenged the FCA’s findings on their files.