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Simon Collins: Suitability is nothing without proper disclosure

It is disappointing that the positivity around suitability is undermined by a lack of clarity over what advisers’ services provide and how much they cost

Over the past few weeks, I have spoken to representatives of a number of financial planning and wealth management firms, ranging from the very small to the national.

Key topics of conversation have broadly been the same across the board: growth, profitability and competitiveness, technology and developing services, suitability and disclosure, and coping with regulatory change.

One thing that is clear is the time and energy that firms are spending thinking about the services they are providing to clients and whether they are adding value.

It is encouraging – and perhaps understandable – that all those I have spoken to believe they are providing a service that is of value. In fact, many view their approach as unique, and who am I to question that? If providing suitable advice is a key indicator of value, then the recent feedback from the FCA following its suitability review demonstrates that, on the whole, advisers are indeed delivering. But is that too simplistic an assessment?

Take a deep dive into disclosure

An adviser is often in partnership with the client, taking them on a journey. That journey will have many twists and turns over a period of time that could last many years.

So surely it is a given that, in order to prepare a plan, an adviser will obtain the necessary personal information to conclude the suitable course of action, and be clear about what the costs are along the way? It certainly seems reasonable and will meet clients’ expectations, but does it provide value for money? And, if so, how can we tell?

FCA: There’s no ‘magic number’ on suitable advice charges

The FCA comments on a particular challenge in its feedback. It found that almost 50 per cent of advisers are not clear in disclosing fees and charges, whatever the service that is being provided. I think it has a point.

To get to the point where the regulator feels largely comfortable with the quality of advice being provided is a significant and positive step forward.

What is more, if this influences the mentality of those who still start their suitability reports by contemplating how to prevent a complaint, then we may be seeing evidence of a shift in mindset and a confidence worthy of the high professional standards many are achieving.

That said, given the FCA’s finding that only 53 per cent of cases contained adequate disclosure, it is disappointing that this positivity is undermined by a lack of clarity and transparency over what advisers’ services encompass, and what the charge for that service is specifically for. Worse still, some firms are failing to provide even the service initially agreed and charged for.

So, are we making progress? Yes, but it is still a work-in-progress.

Simon Collins is managing director, regulatory, at Eversheds Sutherland

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Well that’s interesting isn’t it, what is the FCAs measure and some would say having advice it better than not having advice. Why are we all so paranoid about the cost, ever tried asking a solicitor how much a will or LPA would cost. I’ve asked six firms recently but received no direct answer.
    It’s your time and expertise your are selling, by all means make it clear so charge what you think is the correct fee and don’t be shoehorned by others, especially the FCA.

    • Is the excuse ‘well, lawyers don’t do it’ really ever acceptable?

      Also, with the variation in work they do by comparison, is it rally a true equivalency.

      Is it not better to ask how you can demonstrate cost and value more effectively to your clients and try and be part of the solution to this problem?

  2. Without seeing the files that the FCA has seen, it is very hard to pass comments on their views. What I do find very frustrating is that the FCA seem to be want specific costs disclosed initially on a “general or indicative basis”. To give a typical indication of what any given initial service will cost on one’s proposition can be seen to be unclear and/or misleading. For example If my proposition states “typically I charge £1000 for a pension review” and I send this to a prospective client prior to a meeting, then he or she is entitled to think that is what it will cost. However at the subsequent meeting initial discussions reveal he/she has 7 pensions with 7 different providers, some have GARs, some can be added to some cannot etc etc. I then tell the client that it will cost him £3000 for the review due to the amount of work to be done. The following conversation then becomes very difficult for both parties. I absolutely agree that before any work commences the fee has to be clear and agreed to. However it appears that the FCA seems to want us to try to cover every conceivable angle in our documentation prior to discussing anything with anyone. This is impossible without having a proposition which is 26 pages long and very complicated. This is of no use to anyone, least of all the potential client. We then get hammered for not being transparent and bombarding the client with information overload. It may help if the FCA produced very explicit and very clear rules on this and not just their normal cop-out of “clear and not misleading”. That leaves so much open to the intelligence of the adviser and the client. Considering Mr Wheatleys statement that 50% of those interviewed on an FCA survey didn’t know what 50% actually meant, How would they understand a 26 page explanatory document outlining the cost of every conceivable situation that we charge for? It is totally ludicrous.

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