The FSA is writing to firms to begin its assessment of how they are disclosing the cost and nature of their advice services post-RDR.
The regulator has set out how it will carry out its thematic review into adviser charging and scope of service, which will take place over three six-month cycles.
The FSA is sending out a questionnaire to 50 firms today which will look at how they “devised, disclosed and are delivering” adviser charging and their advice services. The regulator will ask firms at what stage they disclose details about charges and services to clients, the controls in place, and to provide copies of disclosure material.
The firms have been chosen to reflect large, medium and small firms, and those who are operating as wholly independent, wholly restricted or running a hybrid model.
From the original 50 firms assessed, 20 firms will then be subject to a more detailed review which will involve an FSA visit and client file assessments. File assessments will be focused on disclosure rather than suitability of advice. The 20 firms will be chosen as before based on a representative sample of the market and not based on the firms who are the least compliant.
At the end of the initial six month cycle, the FSA will publish good and poor practice examples.
Speaking to Money Marketing, FSA technical specialist Rory Percival says this approach is in line with that of the new regulator the Financial Conduct Authority which will focus on intervening early before risks materialise.
He says: “We have had a lot of queries about value for money, and how can the FSA judge whether advisers are providing value for money. The answer to that is simply and emphatically, we are not. The only person who can judge that is the client, and that is why disclosure becomes pre-eminently important.”
The second cycle will run between June and December, while the third cycle will run in the first half of 2014.
Percival says: “The first cycle is about providing a supportive approach to the industry. Clearly by the time we get to cycles two and three, we will have set out our expectations more clearly with examples of good and poor practice and so will expect firms to be embedding the right practices by that stage, with the reviews having more of a compliance focus.”
He adds the regulator will be focused on adviser explanations of what services clients are getting at what cost, and says the FSA would have concerns where fees examples are not given in cash terms, such as based on percentages only.
The thematic review into adviser charging and scope of service is separate to the data the FSA is collecting on advisers who have met RDR professionalism and qualification standards. The FSA is calling on firms to submit their qualifications data after around 15 per cent of firms failed to do so by the 29 January deadline.
The regulator is also to carry out a separate thematic review into non-advised sales, which will include so-called “market distortions” where firms are creating ways to circumvent RDR rules.