The Financial Conduct Authority has raised concerns over distributors’ use of “complex charging structures” when selling long-term investment and pension products.
In its first annual risk outlook, the FCA, which comes into force next week, says it has concerns about charging structures in “highly intermediated” markets.
It says: “Complex and often highly intermediated distribution chains mean that different market participants are able to extract fees and charges from consumers at multiple points − a fact that is often unclear to the end user at the point of sale.
“Increasingly complex charging structures – driven in part by pressure on firms from declining markets and changing consumer behaviours – have generated important new revenue streams for many firms. In some cases, these have also been accompanied by lower levels of transparency on products and pricing.
“In addition, disclosures on fees and charges for long-term investment products such as pension and long-term savings products, can mislead consumers on the life-time costs of the product. This could in turn lead to inappropriate product choices, with serious implications.”
The FCA says consumers need to place a significant amount of trust in firms at the point of sale but cannot judge the quality of their advice for years to come when it may be too late.
The regulator adds that firms may fail to take on core responsibilities such as treating customers fairly or making them aware of their rights under the Financial Services Compensation Scheme.
The regulator also warns about certain firms creating “situational monopolies” that leave consumers with little knowledge over whether or not they need a product.