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