Last week saw the publication of the first of the FCA’s thematic reviews into the implementation of the RDR and, although the regulator has highlighted some examples of good practice among adviser firms, it has also pointed to several areas where it has concerns.
Its three main worries are clients’ understanding of a firm’s status, lack of disclosure of costs in real terms and whether clients fully understand what they will receive for ongoing fees.
The issue of status is perhaps the most complicated to articulate to clients, but given the FCA’s comments in recent weeks it is the issue of charges where advisers may see most scrutiny.
The FCA says it is concerned that some firms only present the level of charges as a percentage, which is leading to confusion for clients, and is pressing for all advisers to express their charges in real terms of pounds and pence.
This raises the question, if clients can understand the charges on mortgages or credit cards or the way interest is paid on their bank accounts, why can they not understand the way advisers’ charges are calculated? However, a pound and pence explanation can only help client understanding.
The last concern raised in the review is that firms are not being clear enough about the level of service clients should expect to receive. As this is a central plank of the RDR it is not surprising the FCA is particularly strong on this issue.
The FCA’s initial research was carried out in February and March based on just 50 firms, so it is only a snapshot of the industry, but it is a good indication of the areas the regulator will be focusing on when scrutinising firms. It has warned advisers they need to take notice of its initial results and make sure they address any similar problems with their processes.
Apfa has described the issues raised as teething problems and has said that, overall, RDR changes have been embedded in adviser businesses.
However, given the strength of the language used by the regulator in recent weeks, not only over this publication but also when talking about dealing bias and other areas of potential consumer misunderstanding, advisers need to take note.
The regulator has promised to scrutinise the way advisers implement the results of this first review and the tone of its communications should serve as a warning to any businesses it considers to be falling short of the standards it has set.