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FCA sets out RDR disclosure concerns

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The Financial Conduct Authority says it is concerned about the way some advisers have implemented the RDR, including how charges have been explained to clients and restricted firms describing themselves as independent.

The regulator carried out research between February and April to examine how advisers have adapted to the RDR.

It says while many firms have made progress, there were some “common issues” which emerged.

These included providing charges in percentages, rather than cash terms, which the FCA says some consumers found confusing.

FCA chief executive Martin Wheatley flagged these concerns last week at the annual public meeting, saying that “dealing bias” continued to exist where advisers are only paid when people buy a product. He cited adviser charged based on a percentage of assets invested as an example of these concerns.

In its research today, the FCA says other problem areas are where firms are describing themselves as independent when they are in fact restricted, and advisers who are failing to clearly explain what service customers will receive for ongoing service.

FCA director of supervision Clive Adamson says: “The research for this report was undertaken just a few months after the implementation of RDR, so provides an early snapshot of what has changed.

“This early view shows, while firms have acted, they still have more to do to if a customer is going to be in the best possible position to understand the price they will pay and the service they will get for that price.

“Firms should carefully consider the feedback covered in this report. We strongly encourage advisers to look at the examples highlighted, and take immediate steps to help their customers better understand the charges and services being offered.”

The FCA has also carried out separate research into the effectiveness of firms’ disclosure documents on charges and service.

The regulator is sending out a factsheet to over 6,000 adviser firms to help them assess whether the issues the FCA found apply to them.

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There are 29 comments at the moment, we would love to hear your opinion too.

  1. Unbelieveable – In my vie the FCA are just not happy that adviser charging from product exists at all. Their real objective is to get rid of that totally and leave the only option for clienst to pay directly for advice. What they want is for us to have to say to clients that the only way you get advice is to pay for it wheter you take the recommendations of not. The UK public simply will not accept this on the whole. It is a model that will not work for the masses. Never worry that regular savings market has been dessimated already as advisers cannot afford to sell pensions to the self employed or regular ISAs to anyone as we cannot afford the time it takes to do it compliantly in return for payment on the drip. It is simply not commercial. Will be even less so with the removal of provider facilitated AC – Morons, total morons in humble view. What is next?

  2. re Marty, bang and what is next……..commission on anything else. See latest FCA focus.
    What next…a new job outside the financial services sector where commercial reality still exists

  3. What a complete waste of time and our money. Fund managers charge a percentage for managing funds and consumers accept this. When you negotiate deals on other products you ask for say 10% off consumers understand this. It makes me wonder if the FCA have any one working for them who actually live in the real world or are educated to the same level as we are. In Marks and Spencer today they are advertising 50% off some items and I did not see any one asking staff what that was in monetary terms. I bet when Wheatly gets a pay rise it will be 5% or 10% or more

  4. They won’t be happy until there’s no one left in this business to regulate. Not only do they stop commission but now they want to dictate what is charged. Who doesn’t disclose the charges in pound note terms? I thought that everyone did.

  5. RegulatorSaurusRex 25th July 2013 at 11:37 am

    @ Marty

    Consumers should pay for the advice whether they take action or not.

    How would you survive if none of your clients acted upon your advice?

    In other words, given your published comment is there a risk that you would put pressure on your client to take action in order to earn an income?

  6. I am paying a percentage of my turnover to FCA

  7. It’s interesting to observe the ‘death by a thousand cuts’ strategy used by the Regulator.

    If RDR had been a Scandinavian model, with all payments other than those paid directly from client to adviser for advice, upwards of 90% of advisers would now be packing up. Given the clear Regulatory objective to harass the advisory sector into extinction, why not just grow a pair and do it with RDR? Why the ‘concerns’ and endless ‘probes’, having left us with the means to at least make some sort of living?

    Our client bank will for the most part pay fees directly to us. However, the cost of executing business compliantly keeps rising, so something has to give somewhere. With the best will in the world, I find it difficult to see the commercial model for giving independent advice in the UK holding water for too much longer. The VHNW sector is the exception (I hope) and I am coming to the reluctant conclusion that any practice that wishes to last the course will need to focus on that client segment, quite possibly exclusively.

    Incidentally, I don’t much fancy the FCA’s chances of stopping the big players such as SJP from using percentage based charging, and until they do….

  8. Marty, you are correct. The FCA want you to charge a fee for some advice. Using our strength in analytics we looked at a sort of B2C due diligence service. People bring their cock and bull 15%per annum product to us. We review it and tell them it’s a load of rubbish. Will the customer pay for that? No. The customer is fed up of being shafted with low savings and annuity rates and wants a “solution”. If we could provide a magic money tree solution, he will pay us for it. If we could confirm that the reckless scam of a product he’s brought to us is OK, he’ll pay us. But teh consumer will not pay to be told that he is a nitwit nor to have his fantasy balloon pricked.

    So I agree, the FCA have so misjudged their idea of what the archetypal “consoomer” is, that the whole financial service edifice built to suit this idea is totally wrong.

    I’m sure everyone else has an analogy for the lunacy of the idea that you can divorce remuneration from transaction. In no other area of commerce does that happen. If I choose to walk past Tesco and not go in to buy something, Tesco can’t ask to be paid for having stuff available for me to buy, even when I didn’t. And the tree surgeon who recommends that I leave a tree alone rather than cutting it down can’t charge his full tree cutting fee because
    “you’re bleeding having a giraffe mate asking to be paid when you ain’t actually done anythink”. If he forced me to pay in full, I’d be shopping him to Nicholas Campbell and his fusspot Watchdog mates on the BBC about ‘ow I was ripped off.

    Has the FCA never looked at how:
    a) industrial tribunals work
    b) no-win no-fee claims companies work
    c) the FOS works?

    People will not pay to come away with nothing. And this is an organisation which brags about employing behavioral psychologists. Well have them all shot for a start, because they clearly aren’t any good.

  9. After the (recent) years of studying resulting in me not getting to spend as much time with my family, not getting as much to spend on the golf course, more sleepless nights than you could shake a stick at, grey hairs where there were never grey hairs and generally missing out on some fun stuff as my head was in some book or other….”they” are still nipping at our heels day in day out with relentless passion. Why oh why can’t “they” just be glad that so many of us persevered so that the general public can be advised. This same general public, or many of them at least, really couldn’t give a toss about RDR, adviser charging and all the other issues currently under scrutiny so long as they are getting the best of advice and are not being ripped off the like of which is still going on today. It’s high time the FCA spent their money chasing, catching and jailing these individuals because we know they are still out there because Money Marketing report them to us on a weekly basis.

  10. RegulatorSaurusRex 25th July 2013 at 11:53 am

    @ Anonymous 11:47 am

    “the cost of executing business compliantly keeps rising”

    What may be compliant in your eyes now may not necessarily be compliant in the eyes of the regulator, the FOS or the FSCS today or at any time in the future.

    Might as well do the establishment a favour and shut up shop today.

  11. FFS, I wish they would just make some clear rules and stick by them.

    Stop making rules and then constantly worrying and re-interpreting them all the time.

    Alternatively just tell us that its all over, compensate us for the loss of our businesses and close the who sector.

    Will someone at the FCA just make a decision please AND THEN STICK TO IT AND NOT KEEP CHANGING THEIR MINDS or ‘refining’ it all the time.

  12. The FCA fee structure is as clear as mud – just looked at my latest Fee Calculation sheets there are only 21 sections, sorry Fee Blocks, that are used to calculate my cost to the FCA. You somehow use the Tariff-Data for each giving a Class Specific Cost, then followed by a Class Compensation Cost, then followed by a Retail Pool Cost and eventually a £ Total Levy!!!! I think I will adopt this Fee Structure with clients they are sure to understand it then when I disclose this information to them.

    “Leading by example” – Lance Wheatley, bonus payment % based; FCA fees % based.

    What a tough bully boy he is – what ‘service’ do we get from the FCA for our Fees?

  13. What I think we should be doing is charging for advice – whether or not a product is purchased. The old model was purely transactionary and perhaps we should be moving on. Indeed why should we work for free if a client doesn’t proceed? That (in the case of the client) is almost fraudulent. He/she takes our time, listens to our advice and then expects to get away without paying if they don’t transact. I won’t work that way.

    The further outcome is that by charging this way unit charges can possibly be lower, because the buyers don’t have to subsidise the non-buyers and advisers may also take on cases where a product isn’t the end result anyway.

    No doubt there will be howls about the disenfranchised Great British Public. I think that perhaps in this event we ought to thank the Regulator. He is pushing us in a direction which is perhaps equivalent to a solicitor, accountant or dentist. Sure there are many who don’t use these services, but there are plenty who do and they realise from the outset that their wallet will have to be opened as a result. Isn’t this a place we too should be in?

  14. I spoke to guy who was a client of an advisor at Alexander Associates Group who provide advice as a subsidiary of St James’s Place and he was adamant that his advisor was independent and it isn’t the first time I’ve come across this, they are the biggest culprit

  15. Compliance Dude 25th July 2013 at 1:15 pm

    Can’t help but agree with the previous comments, but the key thing is, how do we, as a profession, ensure that we can demonstrate we can meet the ever changing requirements of the Regulator??
    There is so much that goes into the advice process already that consumers have to contend with, that doesn’t really do anything other than cause more confusion.

  16. Alitair Paterson 25th July 2013 at 1:21 pm

    @ Harry.

    I am sure that will work beautifully in London, but I can assure you, Harry, it won’t work in rural Lanarkshire.

    Now, I’m pretty sure you aren’t based in London, Harry, so please don’t take me to task on that. The main point I am making is that many of us work is areas and regions that are far less affluent than the South East and some other parts of the UK. I cannot help myself in not being able to shake off the feeling that everything that has come out of the FSA (and now FCA) in the past 10 or more years is based on London Media Darling attitudes, with a London view.

    Here on the coal face, the reality is that solicitors and accounts in this area currently struggle to get clients to pay £100 per hour, never mind £200 to £300 that fantasist London based regulators seem to think we could charge up here. It is also true to say that the regulatory cost of transacting business, and the time each transaction takes, just keep rising and rising.

    I am heartily fed up in this industry and if I could find someone willing to pay me 3x my 1% per annum funds under management agreed adviser charges (much less likely now thanks to the FCA latest comments) and who would be willing to buy my office as well for £100k, I would be off like a shot tomorrow and never look back. I find that really sad as we do a great job, really look after our clients and have never had a single complaint upheld against our firm (indeed, we have actually only ever had one complaint since we opened in 1996, a bogus PPI claim !!!!).

    Anyway, I am just thoroughly disheartened and can now see the beginning of the end for the IFA sector. I am genuinely going to start looking at multi tie or restricted in the near future. The IFA model is simply becoming financially unsustainable for the mass market, as the banks have been quick to identify. I actually think this is exactly what the regulators want.

  17. I have no problem with the concept of paying for advice, in my experience neither does the public. The problem with selling this proposition to the public is when that advice is to do nothing.

    Quite often the comparison between IFA’s and Accountants/Solicitors is used to justify a fee based proposition. The flaw in this comparison comes when an IFA advises a client to do nothing. Clients never walk into an accountants office or a firm of solicitors pay a fee and have nothing happen. They visit accountants when they need their tax returns completed and solicitors when they need legal documents created or updated. In both cases there is a clear before and after position.

    Walking into an IFA and being told to do nothing would leave most members of the public with a sour taste in their mouths. “What do you mean you’re telling me to do nothing cause i can’t afford it and you’re charging me £200 for the pleasure?”

    I am not arguing for or against either hourly rates or % based fees i am just trying to point out what, in my opinion, would be the publics opinion.

  18. @Harry Katz. You draw comparison to a solicitor, and accountant and a dentist.

    If we ignore the HNW client for a moment the mass market employ these services on a transactional basis, like a will, an annual return or a scale and polish. In reality if the consumer is advised to take a course of action and does not, then these professions will not, or would not be able to make a charge for this advice.

    I think you’ve got this all wrong, and i feel that yet again one important element is missing in all your arguments, and that of the regualtor and that is the consumer.

  19. We largely operate on a piece work and percentage basis

    You want some advice on your investments your pension or your life we will charge you a fee to look at it. You then want us to do something with it ie implement, we charge you again.

    The combined fee on a £100k investment will probably add up to 3% – lower % on larger sums – but it does mean that we do not now give away advice an get paid for all we do.

    As had been previously mentioned SJP advisers regularly state they are independent and that their advice is free and still talk about getting paid commission out of the product.

    In the absence of evidence to the contrary I choose to believe and very much hope that the FCA finally has SJP in its sights.

  20. I understand the concept of paying for advice instead of an adviser only being remunerated when a product is sold. However, are the FCA aware of just how few clients are prepared to commit to paying, say, £1,500 for a report – that they haven’t yet seen, don’t know what it will contain and that might tell them to do nothing. Wealthier clients maybe, wealthier clients are also prepared to pay an hourly rate, but a client that wants to pay £200 pm into a pension plan isn’t, nor does this type of client tend to have £1,500 handy in his bank account. Financial advice really will be for the wealthy only. Thousands of clients have been alienated and many more will be based upon this article.

  21. @Alistair Paterson

    Actually I current am based in Greater London, but I used (for many years) to work in Manchester. As far as this particular topic is concerned I have to say that I find no difference.

    However I do appreciate that things may be different in Scotland. From what you say you may have two possible options. Try to sell your book to a Southern firm, but in view of the pending possibility of Scottish Independence, that may not be easy.

    Alternatively bearing the above in mind perhaps Caledonian independence might mean your own Financial Services regulation. It could perhaps be more benign and suited to your region.

    @ Derek

    Very valid points indeed. I was approaching this from my own perspective. My accountant charges for strategic tax advice – whether I take it or not. Lawyers too provide pure advice – but I concede this is not for your ‘average man in the street’. Dentists actually are the nearest and inspection might not yield the need for treatment, but you still get charged. Anyway this is semantics – I was trying to illustrate a point. In our field advice certainly does not have to be transactional. As an example I do advise several clients who are unfortunate enough to be roped into their company’s GPP (but it is never a good idea to turn down the firm’s contribution) – for which the receive scant or no advice and therefore turn to me for technical input as well as guidance on fund choices of the few that are generally on offer. They pay me a fee for this – gladly.

  22. @ RegulatorSaurusRex 11.37am
    I am surprised at your comment however I will respond thus:
    May 29th 1989 I joined the industry and as of today have remained complaint-free.
    Of course clients may not buy from me from time to time that is what happens in a sales profession but like the huge majority of advisers out there I am perfectly comfortable with this fact. I only deal with existing clients and referrals from them and ask at every annual review for an additional referral (just 1 though) as I couldn’t cope with more than that. Being a real bore, the very first thing that I say to every referral once we get to the business end of the fact find appointment is this. “The outcome of this meeting will result in one of 2 situations: We will discover that you have the right amount of everything in place and there is nothing I can do for you or, together we will uncover needs that you don’t yet know exist and you should take some action to address. If it is the former outcome then you will have had a professional confirmation of this fact and the only advice you will receive will be to keep an eye on things in the future to ensure this remains the case and there is no charge for this meeting, I bear the cost of it. If we do uncover needs that you should act upon I can make recommendations to you to satisfy these needs and I get paid in one of two ways for my professional services. A – An agreed amount with you before I start any work for you and this applies regardless of whether or not you act upon my recommendations or B – by the recommended provider(s) but only if you are happy enough to act on my advice and proceed with the recommendations.
    The first 2 “business” questions I then ask are these: do you understand the options? & “Which option would you prefer?”
    Usually their initial reply is “How much do you charge?” (Because most of clients are not HNW, their referrals tend not to be HNW either) but this is then a logical progression that allows me to whip out my proposition and go through it.
    Once we have been through the proposition, virtually every single referral says they will go for option B and I have no problem because I have NEVER yet managed to find a referral (or client at a review) who has everything covered.
    Like you Reg S Rex I have been around for a while and probably like was taught to do the fact find properly and sell (or advise if you prefer) to the need.
    At the end of this meeting my last business question to them is always the same (again because I am a bore) is this: (and you IFA’s who believe you are above being a salesperson will hate this because it is so 80’s/90’s direct sales) “Provided I am able to find a suitable solution(s) that you like and understand is there any reason you can think of that we should not put it/them in place next time we meet?”
    I can only speak for myself but this has worked very well for the last 24 years. Personally I don’t believe that we should get paid if our advice doesn’t lead to client acting on our recommendations (that IFA speak for buy a product or two). That is only my own humble opinion of course as always and I can’t wait for the barrage from those “advisers” who will tell me its the likes of me that gave the industry a bad name and that we are not all salespeople and on and on and on like Ariston. Give it your best shot chaps because without sales there will eventually be no providers to action your advice because they too will all have gone out of business. Like it or not every business needs sales to survive and thrive and expand. It is called being in business.

  23. FCA – “… found that while the vast majority of firms have made progress, and there was a general willingness to adapt to the new rules…” General willingness? Like we had a choice?

    “If your charge is a percentage, do you provide cash
    examples?” – Any client who doesn’t understand percentages (especially when the FCA/FSA bangs on about them for deposit accounts etc.) should be investing and should probably be in a home for the bewildered.

    What planet are they from?

  24. @ Norm – equally if an IFA finds it difficult to disclose a percentage in cash terms and realise that they are actually “restricted”, then how do those same people think they are expert enough to be in a position to advise and sell financial products? Come on, its not difficult is it?

  25. “These included providing charges in percentages, rather than cash terms, which the FCA says some consumers found confusing”.
    Do those same consumers have a mortgage or savings account or perhaps buy a car on HP?

  26. @ anonymous, you miss the point

    If the FSA/FCA say you must express your charges in cash terms what possible reason is there for then not doing that?

  27. Some commentators in this thread really find this issue very tricky to comprehend don’t they?

    The regulators want advisers to be remunerated for giving advice, not for selling a product. Only then can the product be recommended, or not, without affecting the level of remuneration and so the risk of bias. Just, as one person has already mentioned, we expect of a dentist or other professionals who give advice, Geddit?

    I sincerely hope those who still pretend to not understand find the products they recommend less confusing for them.

  28. @Peter D

    I’d like to be remunerated for my winning personality and taste in suits 😉

    Whilst I understand your apparent impatience with the Pavlovian reactions evidenced in the comments thus far do spare at least the odd thought for those that disagree.

    Of course being paid for advice regardless of any ‘call to action’ is the ideal and indeed, for a section of the populace that model can and does work.

    It doesn’t work for everybody tho’ Peter and those practices that have traditionally dealt with butchers and bakers and candlestick makers could be forgiven for resenting the ‘That’s the way to do it!’ squawkings from an apparently intelligent and well remunerated parrot.

    Just saying……

  29. Hooray, I’m so keen to put in (how many!) hours to get to level 6 then realise I’ve been wasting my time because I’m in a business I don’t want to be in anymore… Thanks for nothing

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