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FCA refers advice firm to enforcement in final RDR review

The FCA has referred an advice firm to enforcement action in its third and final post-RDR thematic review.

The regulator says: “Following the third cycle of work, we have referred one firm – who we do not believe has sufficiently engaged with the changes the RDR requires – to our enforcement and financial crime division.”

In a thematic review on adviser charging and services published today, the FCA says there has been a “material improvement” in the way firms disclose the cost of their advice, their scope of service, and the nature of their services to clients.

In its second cycle review of disclosure in April, the FCA warned many advisers were not providing clear information on the costs of their services in what it called a “wake-up call” to the industry.

However, the regulator says it remains concerned that some firms are failing to provide individual clients with clear disclosure, in cash terms, of their ongoing charges.

The review found 35 per cent of firms did not disclose the total adviser charge for their ongoing services in cash terms relevant to the individual client, compared to 41 per cent in cycle two. This normally applies when the firm is using a percentage based charging structure.

The FCA says: “As this was one of the main failings in both of the previous review cycles, we are disappointed that a significant proportion of firms continue to fail to disclose the ongoing adviser charge in cash terms for individual clients.”

It also found that of the firms using hourly rates within their charging structure, 57 per cent did not provide an approximation of how long each service was likely to take, compared to 73 per cent in cycle two.

The FCA says that in practice, many of these firms’ primary method of charging clients is on a percentage basis, which they disclosed clearly. However, it says it is important firms ensure all of the charging methods included in their disclosure documents are clear for clients.

In addition, the review found that 23 per cent of firms use wide ranges in their generic disclosure. For example, stating that they charged between £X and £Y for a financial planning report.

The FCA says where there is a lack of clarity it can be difficult for the client to be clear about the likely cost.

The review’s findings were broadly similar across different types of firm, with the exception of wealth managers.

The FCA says too many wealth management firms operating on a percentage charging basis are failing to provide examples in cash terms in their generic charging structures, typically in their rate cards.

The industry-wide failings in this area are 15 per cent for initial charges and 18 per cent for ongoing charges, but the equivalent figures for wealth management firms are 36 per cent and 50 per cent respectively.

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. Are we not allowed to know who the culprit is?

  2. Is it too much to hope that it might be SJP?

  3. Perhaps a bit of support for the firm in question until the outcome of the enforcement action is published. I for one do not wish to have a reputation ruined needlessly if they prove the FCA are wrong. If this is not the case, then hang them out to dry by all means

  4. If, as part of reviewing what your [new] client may already have, your work involves trying to screw information out of a few life companies on various plans of one type and vintage or another, it’s all but impossible to formulate any sort of realistic estimate of just how many hours it’s likely to consume. About the only realistic starting point is that it’ll probably take at least twice as long as it reasonably ought to.

    Having never actually done our jobs, most regulators have absolutely no concept of problems such as these.

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