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FCA set to refer two firms to enforcement over cost of advice failings

The FCA says it is likely to refer two firms to its enforcement division after a thematic review found three in four firms failed to provide the required information on the cost of advice.

The regulator says the two firms likely to be referred to its enforcement and financial crime division had “egregious failings”. One is a financial advice firm and one is a wealth management firm.

The FCA’s latest review into disclosure by financial advisers found too many firms are not being clear with consumers on how much advice costs, the type of service they offer and what on-going services they provide. It found that of the 113 firms involved in the review, 73 per cent failed to provide the required information on the cost of advice. 

It found that while failings are widespread across the industry, wealth managers and private banks performed poorer than other firms in nearly all aspects.

The review found that:

  • 58 per cent of firms failed to give clients clear upfront generic information on how much their advice might cost;
  • 50 per cent of firms failed to give clients clear confirmation on how much advice would cost them as individuals;
  • 58 per cent of firms failed to give additional information on charges, for example not highlighting that on-going charges may fluctuate;
  • 31 per cent of firms offering a restricted service were not being clear they were restricted, or the nature of the restriction; and
  • 34 per cent of firms failed to give clients a clear explanation of the service they offer in return for an ongoing fee and/or their right to cancel this service.

FCA director of supervision Clive Adamson says: “The RDR has involved a major change to the investment advice landscape. While we have seen a lot of positive progress and willingness by advisers to adapt to the new environment, I am disappointed with the results of our latest review looking at whether advisers are clear with their customers on costs and services provided.

“We will be helping the industry again to understand our requirements with the release of a video guide but these results are a wake-up call and we expect the industry to respond.”

The review is the second of a three-cycle assessment of how firms have implemented the disclosure elements of the RDR. The first cycle was published in July 2013 and the third will begin in the third quarter of this year.


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Let me explain what the FCA thinking is here. Under their mandate to ensure competition within the marketplace the FCA want consumers to choose a number of local IFAs, download their disclosure documentation with their example costs and decide from that information which is the best (by implication cheapest). 73% have got it wrong probably because these firms cannot believe what the idiots are doing! It also explains the numpty reporting requirements.
    There is competition in the building market but I do not expect to go to a builders website and get a quote as I recognise that I need advice if only to see if what I want to do is possible! Having got the quote I can then shop around. Which is what consumers should do for advice.
    In the Telegraph last week a writer stated that regulators across the world are stifling markets and restricting the development of new products for the sake of regulation. This is another example of overregulation.

  2. Well put Sam. We all know and deep down fully agree that the industry needs to be regulated, but in a sensible way, not in the way in which it is being run. The problem is that the FCA (And all those before it) really have no idea of the outcomes to people in the get when they come off with the hair brain theoretical clap trap that come off with at times. I can only speak for myself and other advisers disclosure docs that I have seen ( and its a damned site more than 113 over the past year ) but 100% of them clearly state status, fees in terms of percentages and examples of what that means in pounds and pence and what they get for their money. The total costs are shown in the quotes and the advice costs again disclosed in suitability letter. The provider confirms this to the client so I really dont know how much clearer we cna get. I am open to suggestions though if anyone has any ideas. To give them credit the FCA did state the worst offenders they saw were private banks and wealth managers (what is a wealth manager and what does he/sheactually do?) but as usual they seem to be tarring everyone with the same brush – a sort of one size fits all thing. You know the exact opposite to what Mr Wheatley is reported as having said the FSA did so badly at as it didnt work. Strange how they always seem to revert to type.

  3. How easy is this?

    Client: “How much are you going to charge me for your services?”

    Adviser: “£x”

    Client: “Yes please” or Client: “No thank you”

    What is the problem?

  4. What is the service? Who will do it i.e. what is the hourly charge? What existing plans and policies does the client hold? How can you define the value of x in £x. This is the problem especially for hourly charging advisers. Not until you have spoken with the client can you be sure what the service is. The actual charge can typically vary between 0.5% of “investment” and say 5% depending upon the ancilliary services needed.
    To put examples in a brochure is totally misleading.We would be happy if clients spoke with us but until that stage we cannot say with any certainty what the cost will be. And we discount existing trail….
    As for disclosing on going services – what service, how often, who will do it and will it change?
    There will be a regulatory review in a few years to determine whether clients have opted for price over advice……

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