Many financial advisers failing to clearly detail the cost of their advice, says FCA

The regulator said that 73% of firms "failed to provide the required generic information on how they charge for advice and/or failed to clearly confirm the specific cost of advice to their individual clients in a timely manner". It said it is concerned that the failings "may lead to poor outcomes for consumers".

The results of the study, which involved reviewing information provided by 113 businesses and assessing a sample number in more detail, mark the end of stage two in the FCA's three stage review into how businesses are adhering to the Retail Distribution Review (RDR) rules.

The FCA said it was "disappointing" that the same failings in compliance with the "disclosure requirements" (14-page / 1.32MB PDF) had been identified during the second stage of its study as had been in the first. It said that it is "likely" that one financial adviser company and one wealth management business would be subject to enforcement proceedings.

"While we identified similar failings in the first cycle of our thematic review, we acknowledged that at that stage the disclosure requirements were relatively new," the regulator said in its report. "We then provided further clarification to the industry to support firms in making the required changes... We believe that by the start of the second stage of our review, firms had had sufficient time to prepare for and then implement the required changes. So it is concerning that firms are continuing to repeat the failings highlighted in the thematic report published after the first stage of the project."

Among its other findings, the FCA said that almost a third (31%) of advisers offering 'restricted' advice had either failed, or not provided a "clear description" of, the "nature of their restriction". The RDR requires advisers to tell consumers if they are offering advice on an independent or restricted basis.

Generally, independent financial advisers are required to consider all available products and providers in a relevant market before making a personal unbiased and unrestricted recommendation to clients on what to invest in. Restricted advisers are legitimately able to offer advice based on a smaller list of products or providers providing they are up front about this with clients.

"It is important that firms provide a clear explanation of the scope of service they offer, and the nature of any restrictions, at an early stage," the FCA said. "This is key in assisting consumers in making an informed choice about whether they feel the service offered is appropriate for their needs."

The regulator also said that 34% of the businesses it analysed failed to provide clients with "a clear explanation of the service they offer in return for an ongoing fee and/or their right to cancel this service at any time".

"In addition to disclosing the cost of the ongoing service, it is important that consumers understand what service they can expect to receive in return for the ongoing fee," the FCA said. "It is important the description is jargon-free and explained in a manner that a typical retail client would understand."

"The failings identified by our review suggest some consumers could be unaware of, or even

mis-led, in relation to the cost of advice (both initial and ongoing), the type of service offered by a firm (including whether it’s independent or restricted), the nature of a firm’s restriction (if applicable), or the service they can expect to receive in return for the ongoing fee," the regulator said.

"Another desired outcome of the RDR was to introduce remuneration arrangements that allow competitive forces to work in favour of consumers. For this to be achieved, consumers (or third parties acting on their behalf) need to have the ability to research the market and shop around. This will only be achieved if firms provide clear disclosure documents that consumers can use to help them make informed choices," it added.