In a review of the way financial advisers are implementing new regulations, the Financial Conduct Authority (FCA) has identified areas in which some firms are coming up short.
The FCA has found that some advisers are failing to adequately disclose important information to clients about the nature and cost of their service.
A separate piece of research, completed for the regulator by an independent consultant, also suggests that firms need to do more to provide clear and concise information if consumers are to understand and compare services and prices.
New rules for financial advice
In January this year, the way financial advice is paid for changed. As a consequence of the Retail Distribution Review (RDR), commissions from investment products are now banned and advisers are required to clearly state the charge for their services.
In addition, advisers must make clear if their advice is ‘independent’, which means they consider the whole of the market when making recommendations, or ‘restricted’, which means their advice is limited to a smaller range of products.
Issues for advisers to address
The FCA has concluded that, while the majority of advisers have made progress, there are some issues for firms to address.
The regulator identifies three common failings:
- Advisers quoting charges in percentages, rather than in cash terms, which some consumers found confusing.
- Firms describing themselves as independent but in fact choosing products from a limited number of providers or products.
- Advisers not clearly explaining what service customers will receive in exchange for on-going fees.
Review of adviser literature
The independent research, carried out by consultant NMG, has also identified a checklist of questions that consumers should feel they know the answer to before agreeing to pay for advice.
According to the checklist, investors should feel they have a clear understanding of the nature of the advice being offered, all the stages of the process, the approximate cost of setting up a new investment, whether any on-going advice will be provided and how they will pay for it.
Standard rate guide
Following an investigation into the cost of financial advice in March 2012, Which? called for the compulsory introduction of rate guides to be published on financial advisers’ websites, outlining key elements of their rate structure (for example, the hourly rate) and showing fees for a range of scenarios.
A standard rate guide, displayed online by every adviser, would help consumers compare prices and decide whether a particular IFA is offering value for money.