Spike Milligan once said “90 per cent of statistics are made up on the spot”. Sadly, the FCA did not make up the fact that 41.7 per cent of the cases it examined for its suitability review provided unacceptable disclosure.
It will be interesting to see the real detail of the results report, although we may be kept waiting for that throughout 2017/18. I do not know why the regulator cannot just get on with it and publish some information on good and poor practice.
I guess the rule in question is Cobs 6.1A.24R. It is pretty straightforward: if an adviser charges a fee expressed as a percentage, there is a requirement to convert that percentage into a monetary amount so that disclosure is explicit. And that disclosure needs to be as early as possible.
Some might argue that clients are perfectly equipped to convert percentages into cash terms themselves. That may well be true for a few but the rules require it, so no excuses.
The FCA paper states: “Our results show the main area where there is an unacceptable disclosure is with firms’ initial disclosure, which includes costs and services”.
Noticeably, it was not about an absence of disclosure but “firms using hourly rates failing to provide an indication of the number of hours for the provision of each service” and “firms disclosing charging structures with wide ranges”.
Finding a way to communicate fixed fees
The former is particularly interesting. Advisers charging on this basis might well argue they do not know until they have engaged with the client precisely what it is they are going to do for them and thus are unable to quote a realistic timescale.
I do have sympathy for this argument. But how difficult can it be to come up with some examples of what has been done for existing clients? Perhaps one related to a full financial planning exercise, one for at-retirement and one for investment?
It may not be precise but it will give the client a feel for the magnitude of the fee. It could also have a caveat explaining how individual circumstances might mean the ultimate cost will go beyond the example.
As to “wide ranges”, the regulatory comment seems a bit contradictory. If a firm is charging on an ad valorem basis and has a tiered pricing policy, there may well be a wide range of prices to quote; particularly if they are prepared to deal with a range of investors with a range of money to invest. You can imagine the negative regulatory comment if such a firm gave too narrow a set of figures. Damned if you do, damned if you don’t.
Price disclosure is important but so is service disclosure. The only way consumers are going to be able to judge whether an adviser offers value for money is if the proposition is fully described alongside price. One without the other is pretty useless.
As we discussed at the Money Marketing Interactive conference in London last month, there are a variety of charging methods applied by advisers. None are right or wrong as such but each is different. Our collective challenge is to communicate this to clients as well as we possibly can.
Nick Bamford is executive director at Informed Choice