The FCA has pledged to continue to monitor the suitability of advice in its review of the retail investments sector and says “relatively few” advisers are transparent about pricing before they sell advice.
The regulator today published its “sector views”, giving an overall view of how it considers the markets it regulates performed between June 2015 and November 2016. The FCA intends to publish individual sector views online once a year.
The regulator identified suitable advice as one of its areas of focus in the retail investments sector, saying advice firms might give unsuitable recommendations because of conflicts of interest or “insufficient competence”.
The document says: “We have also identified the potential for unsuitable advice being given due to poorly managed or unrecognised conflicts of interest, for example, because of charging structures and vertical integration. We will continue to monitor the suitability of advice.”
Another area of focus outlined by the regulator is value for money and the FCA says some advisers may not pay enough attention to this when they give personal recommendations.
The regulator says: “Relatively few advisers are transparent about their pricing before they sell advice. This does not incentivise advisers to compete on price and may result in limited pressure on them to reduce their charges.”
The regulator also highlighted self-directed customers as potentially paying more for products or buying products that are not good value for money.
The sector view says: “Limited comparability and ineffective disclosure can also lead to non-advised consumers buying products that are not appropriate for them, or that they do not fully understand.”
It says: “The risk can be heightened if firms present information in a way that does not help consumers make an assessment or that takes advantage of behavioural biases. Consumers may also end up paying more than they had expected because of limited means to compare products, and the complexity of some charging structures.”
In its assessment of the retail investment sector, the FCA found that risks remain regarding the remuneration of advisers in vertically integrated firms where there could be incentives to sell in-house products and services.
While the regulator says efforts to drive professionalism are improving the quality of service, “opaque and complex” charging structures make it difficult to compare providers which can result in consumers being charged more than they expected.
On competition, the sector view says the clustering of prices around a similar level is largely down to “poor competitive pressure exercised by the demand side”. It says the Retail Distribution Review removed a cause of the conflicts of interest by changing the way advisers and platforms are paid.
However, it adds: “increasing vertical integration between product manufacturers and distributors has the potential to reintroduce some of these risks”.