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Simon Collins: Five steps to satisfy the FCA on adviser charging


One of the cornerstones of the RDR was ensuring commission did not drive advice and lead to poor outcomes for customers, and that those customers were clear about the cost of the advice and services received. But where does the line lie between “fair” and “not fair” in terms of an adviser charge?

The FCA has undertaken thematic reviews in this area and has not been shy about its disappointment over the way charges were communicated to customers.  It found that firms were incorrectly disclosing to clients the cost of their advice and the type of service they provided.

The majority of firms involved in the latest thematic review failed to provide generic information on charges and, when more specific information was provided, it was not communicated in a way which enabled the customer to easily decipher the true cost of advice, or the charge for ongoing services.

Needless to say, the FCA is displeased about this as it is a core failing of the desired outcomes of the RDR and the same findings had resulted from the first thematic review on this subject. 

So what do you need to do? Here are five steps for satisfying the FCA on adviser charging:

(1) Generic charging information

Review your processes to ensure that the provision of generic charging information is embedded.  If you are quoting in percentage terms, it is vital to provide a cash example for charges. This information must be presented to the customer in a timely manner and be clear, fair and not misleading.

(2) Specific disclosure – When providing a service to a customer, you must ensure specific disclosure is made in a timely manner and in a way which the customer can understand. If based on hourly fees, the customer must be provided with an indication of how many hours are required.

(3) Ongoing charges – When ongoing charges are agreed, the customer must be given information which explains what the adviser/firm will provide for this ongoing service. This must be bespoke to the customer.

(4)  Independent or restricted? Review the documentation used and ensure it explains to the customer whether an independent or restricted service is being provided. If restricted, the information must make clear the nature of the restriction. 

This information must be provided to the customer at an early stage in the advice process.

(5) Quality processes –Consider the monitoring processes you have in place and whether these need to be adjusted to account for the regulator’s findings.

The FCA has not gone so far as to raise issues about the level of charging but firms must consider whether the fees charged both at the initial stage and on an ongoing basis reflect the level of work undertaken on behalf of the customer. One way of assessing this would be to translate the charge to an hourly rate and consider whether that hourly rate is reasonable given the work undertaken. 

The FCA has stated it will initiate a third cycle of the thematic review in the third quarter of 2014 so it is imperative that the matters raised in this alert are responded to. 

The regulator has also stated that if in the third cycle the same issues are prevalent and poor customer outcomes are likely, it will take further supervisory action against firms.

Both initial and ongoing charges are under scrutiny. Can you justify the charges your firm applies, both to the customer and to the FCA?

Simon Collins is managing director of RGB Compliance



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There is one comment at the moment, we would love to hear your opinion too.

  1. Am I correct in thinking that the FCA also require us to confirm to the client on an annual basis how much the review has actually cost them? i.e. if you are on 0.5% trail on an £300,000 investment do you not have to confirm that the client is paying you £1500 for that review.

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