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Financial services regulation and ethics


FCA investigates fund charges and incentives

Rachel Gordon and Jonathan Yarker

The Financial Conduct Authority (FCA) has revealed more from its thematic review into fund charges, and reveals that its probe into the way that front-line sales staff are incentivised will be broadened from banks to include all regulated firms.

The FCA’s March business plan for 2013/14 was the first time its investigation into fund charges was outlined. It will be writing to 11 asset management firms enquiring about their fund charges−specifically, what the charges are and how they are broken down and overseen, when compared with information provided to investors.

The firms contacted include global asset managers and boutiques, and the review is being,carried out with support from the Investment Management Association (IMA). The IMA has,been campaigning on the issue of cost disclosure.

Meanwhile, the FCA has also taken up arms against mis-selling. It is now looking at whether,paying sales staff based on results prompts mis-selling.

The initial scope of the FCA’s investigation into sales incentives paid to financial services,employees was originally focused on banks, but it now includes all regulated firms. Selected,firms have been forwarded an online questionnaire to see how front-line sales staff (whether employed or self-employed) are incentivised.

The aim is to see how firms identify risks − some firms will then be subject to a follow-up from the FCA. To counter mis-selling, firms should show they have adequate governance and controls in place and that they have addressed any weaknesses.

The FCA does not expect firms to remove incentives. It does, however, want risks managed and, if necessary, changes made to staff remuneration. It also expects firms to investigate recurring problems, take action and pay redress to any affected consumers. Advisers should ensure they are not increasing their risk (e.g. through any bonuses, commission shares or other incentives such as high-value prizes).

Details are on the FCA’s website in the form of a one-minute guide:


FCA: From a squeak to a roar?

David Smith

Martin Wheatley, the Financial Conduct Authority’s (FCA’s) Chief Executive, has described the regulator as a ‘different animal’ from its predecessor because of its
more aggressive approach.

One instance of this increased fang-baring is its review of Retail Distribution Review (RDR) implementation. Selected firms were asked to provide both their disclosure documentation and details of their services and charges.

Consumer research was also commissioned to assess the effectiveness of adviser firms’ post-RDR communications on charges and services. The research found good progressd overall, but identified areas for improvement. It also found a need for greater transparency around services and charges, particularly when offering a restricted service.

The disclosure of charges in cash terms helps consumers to compare advice costs between firms, and it is difficult to estimate costs just by using hourly rates. Consumers also prefer to have charging information in advance of a meeting. While most firms clearly explained their charges, some did not. It was suggested by the FCA that showing charges in cash terms would be useful, including using examples to illustrate costs for specific services when hourly rates are quoted e.g. pension reviews.

The review identified firms who described themselves as ‘independent’, but were in fact offering a restricted service. The report recommends that restricted firms ensure their documents clearly state the nature of any restriction in terms that consumers can understand.

The need for clearer descriptions of services and reviews was also raised. This would give consumers a better understanding of the options for ongoing services, including the ability to opt out. The report also recommended that firms could also make their documents more appealing by improving their presentation.

Feedback has already been given to those firms that took part in the review, and further assessments will take place later this year. Meanwhile, the report is a reminder to firms of what is expected under the new regime.

RDR: Adviser numbers up 6%


Steve Tolley

New statistics, as of 31 July, show that the number of independent financial advisers (IFAs) and restricted advisers has increased 6% since the Retail Distribution Review (RDR) came into effect.

The overall number of advisers (including bank advisers, IFAs, restricted advisers, discretionary advisers and stockbrokers) is up 5%, from 31,132 to 32,690. Since the start of RDR, and as more advisers gain the required qualifications, the number of financial advisers has increased 6%, from 20,453 to 21,684.

The number of IFAs and restricted advisers operating on the first day of the RDR was 20% lower than the number estimated by the Financial Services Authority to be operating in the previous year, dropping from 25,616 to 20,453. The number of bank advisers plunged 44% in the same period, from 8,658 to 4,809.

There is no breakdown of the number of IFAs. The number of bank and building society advisers fell another 4% in the same period, to 4,604. The number of discretionary fund managers rose 24% −  from 1,435 as at the end of December to 1,784 as at the end of July −  while over the same period the number of stockbroking firms also rose, by 11% (2,043 to 2,267).


Financial protection

Insurance: Truth or consequences Neil Dickey The Consumer Insurance (Disclosure and Representations) Act 2012 came in force on 6 April 2013. The Act deals primarily with the issue of what consumers must tell insurers before entering into an insurance contract, and removes both the principle of ‘utmost good faith’ and the duty of disclosure. As […]


Ex-Cofunds boss Martin Davis to become Kames Capital CEO

Former Cofunds chief executive Martin Davis is to become chief executive at Kames Capital. His appointment follows changes to the senior leadership team at Kames announced in March, which saw joint chief executive and chief investment officer Andrew Fleming step down and the separation of the chief executive and chief investment officer roles. Stephen Jones […]


Lighthouse chief says inducements crackdown will not dent revenues

Lighthouse Group chief executive Malcolm Streatfield says he does not expect the FCA’s clampdown on inducement payments to impact on its revenues. The FCA is investigating Partnership and one other firm after a thematic review found arrangements between providers and advice firms that could undermine the RDR. Speaking to Money Marketing following the company’s interim […]


Labour and IMA in war of words over charges

Shadow pensions minister Gregg McClymont and the Investment Management Association have clashed over the appropriate level of disclosure on investment charges. The IMA published guidance on disclosing fund charges in September 2012. It included recommendations to provide three-year averages for transaction costs, such as broker commission and transfer taxes, as a percentage of a fund’s […]


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