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FCA’s ‘wake-up call’ on costs disclosure: What the regulator wants from advisers

The FCA has warned many advisers are not providing clear information on the costs of their services as it reveals the findings of a “wake-up call” thematic review on disclosure of charges.

This week, the FCA published its latest review into disclosure by financial advisers, which found that three in four firms failed to provide the required information on the cost of advice.

The regulator says the level of non-compliance uncovered by the review is “unacceptable” and the findings should act as a “wake-up call” to the profession.

As a result of the review, it is likely to refer two firms – a financial advice firm and a wealth manager – to its enforcement and financial crime division for “egregious failings”.

The review of 113 firms 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 and the third will begin in Q3 this year.

The FCA says it expects to see significant improvements in cycle three and will take further regulatory action if firms are still failing to comply with the rules.

The regulator says it was disappointed to see much of the bad practice identified in the first cycle repeated in the second.

It says: “The findings are particularly disappointing as the disclosure requirements are clear and should be relatively straightforward for firms to implement.

“In any industry, there is an expectation the consumer will know what they are going to be charged. Unfortunately the majority of advisers that we checked failed to comply with that basic requirement.”

“We believe that by the start of the second stage of our review, firms had had sufficient time to prepare for and then implement the required changes. So it is concerning firms are continuing to repeat the failings highlighted in the first stage of the project.”

Speaking to Money Marketing, FCA head of investment advisers and platforms Clive Gordon says firms appear to be failing to engage with the regulator’s rules. He says: “In July, we published examples of good and bad practice and a two-page fact sheet summarising the review’s findings. We think that not only are the original rules clear but we have been very helpful to firms in understanding the practical implications of those rules.”

Costs and services

The review found that 73 per cent of firms 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 meet the requirements for disclosing their generic charging structure in initial disclosure documents.

When disclosing client-specific costs, half of firms failed to meet the requirements. One common issue was firms failing to provide the client-specific disclosure as soon as practically possible.

A third of firms failed to meet the requirements for disclosure of their ongoing service, with the most common problem being failure to provide sufficient detail on what the firm’s annual review entails.

FCA technical specialist Rory Percival says firms need to explain whether their review includes only an appraisal of the client’s existing investments and their ongoing suitability or additional elements such as the cost of any necessary fund switches.

He says: “An annual review can encompass all sorts of different things and the value of that might vary from one firm to the next. If firms are not explaining what their annual review entails, it is difficult if not impossible for the client to make a judgement about it.”

The review says the extent of the failings may lead to poor outcomes for consumers and may prevent them from shopping around.

Percival says: “There is the potential for consumers to be misled about what they are paying and what service – and what benefit – they are going to receive.”

Gordon says: “In any industry, there is an expectation the consumer will know what they are going to be charged. Unfortunately the majority of advisers that we checked failed to comply with that basic requirement.

“Putting consumers at the heart of your business means telling them how much they are going to be charged for what service. What is particularly disappointing is this forms a very important part of an adviser’s relationship with their client.”

Restricted status

The review also looked at whether firms are properly disclosing their restricted status.

It published the findings of a separate review last month into whether firms describing themselves as independent are acting as such.

The latest review found that of the 25 restricted firms that it looked at, 31 per cent were not disclosing their restricted status properly.

Some 12 per cent of firms did not disclose that they were restricted while 23 per cent failed to clearly disclose the nature of the restriction and 15 per cent provided contradictory information on the nature of their restriction.

Percival says: “For example, some firms were providing information on the nature of their restriction in disclosure documents that was inconsistent with information on their website, meaning it is not clear to customers what services are really being provided.”

Independent regulatory consultant Richard Hobbs says the review shows firms are struggling to understand what standards the regulator expects.

He says: “That is partly because the FCA has cut firms some slack over the past year as the RDR rules were new but that means it now needs to communicate very clearly what it expects.

“A lot of advisers are scared of having hard-edged conversations about costs right at the beginning of the advice process as they worry it will scare customers off. In the private banking and wealth management sector in particular, there is a cultural reluctance to discuss costs in this way.”

Apfa director general Chris Hannant says the findings of the review are “surprising” as he believes the FCA has provided sufficient clarity on the rules.

He says: “It is in advisers’ interests to fully explain the service they provide to clients. 

“The FCA’s tolerance for non-compliance will be even lower when it reviews these issues again so firms must revisit this and get their act together.”

Disclosure review: the key findings

  • Initial disclosure documents The review found that firms using a percentage-based charging structure did not provide examples in cash terms, particularly for ongoing fees. The majority of firms using an hourly rate did not provide an approximate indication of the number of hours that each service was likely to require.
  • Client-specific disclosure Many firms failed to disclose percentage-based fees in cash terms and to provide the disclosure as soon as possible. Wealth management and private banks performed particularly poorly in this area, with over a third of these firms failing to provide any client-specific charging disclosure.
  • Ongoing services A fifth of firms failed to explain what service a client would receive in return for an ongoing fee. Many firms also failed to disclose that the client could cancel the ongoing service and many of those using a percentage-based fee for their ongoing service failed to disclose that the fee would increase as the fund grows.
  • Restricted status Firms failed to provide consistent and clear information regarding the nature of their restriction while 19 per cent of restricted firms did not use the word “restricted” in their disclosure. 



An annual review can vary significantly from a five-minute phone call to an hour-long face-to-face meeting. A lot of firms have been slow to react to the changes of the RDR and those which know their charges are uncompetitive may be deliberately shying away from discussing costs with clients upfront.

Aj Somal is chartered financial planner at Aurora Financial Planning

EXPERT VIEW: Phil Billingham


It is clearly worrying that the FCA is concerned about such a critical area of post-RDR compliance.

However, from reading the review, watching the video from FCA technical specialist Rory Percival published alongside it and comparing it with the first cycle of the review in July, it seems the FCA is clarifying internally and externally what it expects from firms. The regulator is distilling down those expectations into clear steps it expects advisers to take:

Step one: Clear disclosure of “scope of services”. This is the independent or restricted conversation

Step two: Set out clearly the services you will offer, especially ongoing services. Put flesh on the bone, particularly around the review process

Step three: Have a clear, generic description of the way you charge, using cash examples and explaining how it can vary 

Step four: As soon as you practically can, set out to the client their specific charges as it relates to them. The use of a professional client engagement letter is a good way to do this.

We are seeing long-awaited clarity from the regulator, to which the industry should respond positively. 

Advisers should read the FCA papers on cycle one and cycle two of the review, watch the video and think about it from the client’s viewpoint.

Phil Billingham is director at The Phil Billingham Partnership



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

  1. They just cannot stop interfering, can they? It seems to be a sort of collective obsession on the part of this huge and mightily powerful monolithic organisation that doesn’t really have to account to anyone for anything. It just gaily ratchets up its budget every year with not a thought for whether it’s delivering anything to anyone that might remotely be described as value for money or meeting any sort of service charter or defined standards of, well……. anything at all really. Just do as we say, not as we do (or, as the case may be, don’t).

  2. I have nothing against transparency and go to significant lengths to ensure clients know all the costs.

    However I do think in one respect the Regulator is being a bit silly. What is wrong with percentages? Do they assume that everyone is innumerate? If some is about to invest in an ISA – soon to be £15,000 – if they don’t know how to work out (say) 0.5% per annum, then surely they ought not to be investing at all.
    What about when the put their money in cash? The interest rate is expressed as a percentage – n’est pas?

    Stockbrokers charge in percentages as do the asset managers in the investment houses.

    If the Regulator deems percentages to be unsatisfactory perhaps they should be speaking to Michael Gove, instead of trying to micro-manage us.

    When you consider the educational background, occupations and status of many of my clients this is almost an insult. Even I – as a customer – am more than happy with percentages. Indeed it is by far a better measure of comparison. For example From October next year retired people will be able to buy extra State Pension. For every £1 per week extra they will have to pay£890. That is expressed in monetary terms and for me it is meaningless. But when you convert it is equates to a return (Index Linked) of 5.84% – THAT I can relate to.

  3. Both Harry and Julian are quite right. Part of the FCA remit is to promote confidence in financial services and the products that exist. The over supply of minute information is crazy and doing the opposite I fear. Take a typical wrap platform. Anybody outside the industry would have a headache trying to read all that information let alone understand it. People know what a percentage fee is and understand that as the fund grows so does our fee. Their investment success is directly linked to my business income success. They understand that. What they don’t understand is why all the information on AMCs, TERs, platform fees. adviser fees, etc. People tend to ask what does this service cost me? The question is simple but due to complex regulations and explanations required the answer is anything but.

    I am please about the transparent world we have as that is good news. But it should be for the industry to compare itself against its peers and for the public if they are interested. Not mandatory to pile all this stuff in their laps. It will only cause more people to disconnect from FS and saving for their futures.

    Take the pension simplification rules. It sounds great in principle but am I the only one who feels the regulator is going to make it that difficult to deal with people that the public on mass to turn to the loudest PR machine like HL (no disrespect guys), dump all their money is a cash drawdown fund and spend it – because it is easy and understandable.

    It might tick all the right boxes for regulation but it is not necessarily the right outcome for the public.

  4. In fact it should be simple for platforms to provide an overall portfolio cost.

    You have a valuation. Each fund is listed. How difficult is it to have a column showing the p.a. charge for each fund based on the current valuation? Then at the bottom how hard is it for the platform to provide the per annum platform cost on the costs column. We can then show our charge if explicitly charged separately or if from the platform that too can be shown on the valuation. It isn’t rocket science and I really don’t know why platforms don’t do it. But then there are a lot of things that seem to escape them – like for example taking adviser charge pro rata across the boards instead of from a single fund – which is a complete nonsense.

  5. I do wish MM would speak with firms that were caught up in this review and allow them to express the other side. The FCA has been very unfair. Yes there may well be some bad examples but firms were “censured” because the FCA are still changing the rules.
    As one of the 73% we feel very hurt and upset. No work was ever done without disclosing full costs to our clients. On the contrary, we were putting our customers first.
    Did we comply with COBS – yes. Did we comply with interim review – yes. Did we have our Agreement checked with a large compliance support network – yes. Did we check with another network – yes. What more could we have done? Yet everyone wades in to say they are disappointed with the figures and that so many firms failed to comply with the rules. The real issue is the FCA’s conduct here. This is quite alarming, the fact that you can comply with the rules as written down but do not comply because the FCA say so. Readers should be alarmed. It would appear you can never satisfy the regulator.

  6. Sam – I agree it is worrying. I was hoping the FCA had learnt from the mistakes of the FSA. It appears not from your example. That is a crying shame for all of us including the regulators.

    Afterall the only real losers in these situations are the public at large as they become more disconnected.

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