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Nick Poyntz-Wright: Why the FCA is concerned about adviser fee disclosure

As it approaches its next phase of thematic review, the FCA has discovered that many firms’ approach to disclosure was “going into a restaurant and being asked to order without being allowed to see the menu or the price list”.

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At the beginning of July, we will start the next cycle of thematic work looking at how advisers have implemented the disclosure elements of the RDR. 

The results of our last review were something of a curate’s egg: good in parts.

We found that on the whole, firms which described themselves as independent seemed to be using the term correctly. What is more, we hope that the further support we have offered in terms of good and bad practice examples, tutorial videos and the forthcoming positive compliance workshops will help those who remain unsure.

The findings on disclosure were not nearly as positive. We discovered most firms were not getting everything right on fee disclosure and many were not properly describing the services they offer. One person said the situation we uncovered was like “going into a restaurant and being asked to order without being allowed to see the menu or the price list”. I have found many others in the industry agree.     

When we announced the results of our second cycle of thematic work in April, we made clear that if we continued to see the same issues when we repeated the research, we would consider regulatory action. We are now at that point, so it is more important than ever that firms make sure they are complying with the requirements.

Advisers should be the steady hand their clients hold

We have made materials available on our website to help firms get it right and we have recently published a self-assessment tool to assist firms in assessing their disclosure documents against our requirements.

For many people, finance is mysterious. The terminology is almost a language of its own and to the layman the marketplace is full of a bewildering array of products. At the same time, most people would appreciate that having a proper grasp of their finances is vital if they are to support themselves and their family. So, while it is something most do not understand, it is not something they can ignore. As a result, for many, it can be frightening.

That is why advisers are vital. Their expertise can help guide consumers through the jargon and confusion to a solution that meets their needs. To do that effectively, the relationship between adviser and client needs to be based on trust.

Communication is at the heart of establishing that trust, which is why it is all important that advisers put themselves in the shoes of the client coming to ask for help for the first time. The question advisers should be asking themselves is: “If it were me, what would I want to know?” Most obviously: “What do I get?” and “How much does it cost?”

Getting answers that are less than clear or far from concise can get the relationship off to a difficult start. Worse, there is a risk that consumers could be unaware of, or even misled, in relation to the cost of advice or type of service provided by the firm. That can store up problems for later.

A lack of transparency can also create a stumbling block to competition that works in the interests of consumers. As with any other service, consumers should be put in a position where they can make comparisons and consider other options. Put simply, if a consumer does not fully understand what service they are going to receive or how much they will be charged, they are going to find it difficult – if not impossible – to understand whether this is the right firm for them or to make a meaningful comparison between firms.

But while disclosure allows consumers to compare prices and shop around, it should not be forgotten that its primary role is to ensure people know what they will be spending their hard-earned cash on. The RDR has thrown the spotlight on the increasing professionalism of advisers, now we want to see similar progress in helping consumers understand and embrace the important role advice can play in addressing their long-term financial requirements. 

Nick Poyntz-Wright is director of long term savings and investments at the FCA

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. “One person said the situation we uncovered was like “going into a restaurant and being asked to order without being allowed to see the menu or the price list”.

    and on the flip side

    “its like being asked to quote to build a wall, without knowing where it is, how high they want it, how wide they want it, do they need planning permission, what material they want it built from?”

    Whilst I agree in principle to full and transparent fee disclosure, surely advisers need to be given the opportunity to demonstrate value before putting a price on the work involved. I am not saying that work should commence before the consumer has seen the price, I am saying that the value of using an adviser can not be fully appreciated until they have demonstrated what they might be able to do for that client.

    A quote of £2,500 to do a piece of work seems expensive, but if that piece of work saved the client £200,000 in tax, that is good value – 1.25%?

  2. Clive Bridgeman 13th June 2014 at 4:45 pm

    So the Financial advisers will follow the route of all comparison situations… The companies that can afford to pitch their offerings lowest, but still have profit, will survive and the small businesses, often with the real caring professionals, will die off. (Does that remind you of the small independent grocer, remember Cullens, trying to compete with the supermarkets?)

    Often an adviser is unable to show value at the time of first sale because the particular skill in which he excels is not required until further into the Client relationship… by which time the Client is into the hands of the firm which employs the cheapest advisers and cuts fees the most!

    Clients are unable to understand many of the nuances of financial services, and they also are unable to tell the difference between quality and value, especially when confronted with the lowest price comparison! It is ALL about Client perception!

  3. I don’t necessarily agree with the above comments.

    It’s not the lowest cost, it’s the best value. Sell your service to clients, make them understand what you can do for them and where the true value is in paying for it.

    We all know you get what you pay for, make sure you explain clearly what your clients will get for paying your fee.

  4. I agree with Plan Works and Clive, but to be fair to Mr Poynce-W, it is a very good article, but misses the point which Plan W highlights (Matthew for once I think you’ve missed it too).
    Doing a 360 and making the FCA the adviser and the firm the consumer and you realise just what a failure the F-pack remains.

  5. Phil Billingham 15th June 2014 at 3:44 pm

    This is a mindset issue.

    The FCA have a clear view that Advisers sell neatly packaged products and that these products look and cost the same, and that all advisers will thus have very similar processes to sell them. Consumers can therefore shop around for very similar products – pizza anyone? – on price alone. The ‘Restaurant’ analogy.

    As Advisers we see that new products are often the last thing that is needed, and that the work is about understanding the problem, and working with existing resources. It’s like building a house. Half the total budget goes just to get back up to ground level. More if the ground conditions are complex.

    So we want to spend time – AT OUR EXPENSE – with prospective clients, and check if we can help, what the problem really is, and what are the constraints we are working under. And that process is clearly in the consumers best interests.

    We need to sort this out, so I suggest that more FCA staff spend less time in restaurants, and more time with professional Advisers and Planners, and THEN look again at their comments

  6. Phil Billingham 16th June 2014 at 5:54 am

    This is a mindset issue.

    The FCA have a clear view that Advisers sell neatly packaged products and that these products look and cost the same, and that all advisers will thus have very similar processes to sell them. Consumers can therefore shop around for very similar products – pizza anyone? – on price alone. The ‘Restaurant’ analogy.

    As Advisers we see that new products are often the last thing that is needed, and that the work is about understanding the problem, and working with existing resources. It’s like building a house. Half the total budget goes just to get back up to ground level. More if the ground conditions are complex.

    So we want to spend time – AT OUR EXPENSE – with prospective clients, and check if we can help, what the problem really is, and what are the constraints we are working under. And that process is clearly in the consumers best interests.

    We need to sort this out, so I suggest that more FCA staff spend less time in restaurants, and more time with professional Advisers and Planners, and THEN look again at their comments

  7. Forgetting the why’s and wherefores’ of the article for a moment !

    I just wanted to pick up on a couple of things Nick states -:

    “For many people, finance is mysterious. The terminology is almost a language of its own and to the layman the marketplace is full of a bewildering array of products. At the same time, most people would appreciate that having a proper grasp of their finances is vital if they are to support themselves and their family. So, while it is something most do not understand, it is not something they can ignore. As a result, for many, it can be frightening”.

    Then follows on to say -:

    “That is why advisers are vital. Their expertise can help guide consumers through the jargon and confusion to a solution that meets their needs. To do that effectively, the relationship between adviser and client needs to be based on trust”.

    Firstly Nick; yes, but I believe we already know this !!, is this not something the consumer should be informed of and educated on via you (FCA) and or MAS ? also in the same breath, how does this sit with the FCA (Wheatley’s) push for delivering remote simplified advice ? I agree with your statements and clients need to able to talk to someone (authorised and regulated to give advice) and know they can trust advice they get ? not so sure this can be done via computer, decision trees, or any other medium for delivering remote advice (well in the vast majority of cases anyway) take a top up, I had a new client who wanted to top up his pension ? simple ? not so simple as first thought his existing pension was not adequate for his needs, it was expensive, and limiting, I wonder how if some of these things would be picked up by Wheatley’s “advice on the cheap” ?

    And in the context of the article cost is an issue that needs to be clear, and lets face it how hard is it to document and explain ?

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