Investigation by regulator reveals most financial advisers failing to clearly explain cost of advice.
The majority of financial advisers are not being clear on just how much their advice costs.
That’s the conclusion of a review by the Financial Conduct Authority (FCA) regulator, which found that 73% of advisers failed to provide the required information on the cost of advice.
The regulator pointed out that failings “appear widespread across the industry”. However, after reviewing how charging was communicated, from providing upfront information on how much the advice might cost to additional information on charges that may fluctuate or any ongoing fees, it picked out wealth managers and private banks as being particularly bad in nearly all aspects.
The Retail Distribution Review
The issue of how much we pay for financial advice has been a big one for both the FCA and its predecessor the FSA, leading to the implementation of the Retail Distribution Review (RDR) at the start of last year. This saw commission payments to advisers banned, with advisers instead pushed into charging an upfront fee for their advice.
[SPOTLIGHT]The idea was that, by removing commission payments, advisers would not be tempted into recommending unsuitable products. And those of us receiving advice would understand exactly what that advice was costing us.
After the RDR came into force, the regulator reviewed initial progress last July and found that progress had been made, with a willingness to adapt to the new rules. Common issues were also uncovered though, so the regulator produced further examples of good and poor practice to help advisers.
Lessons not being learned
However this second review has found that many advisers are simply not meeting their responsibilities when it comes to charging transparency.
The review found that:
- 58% failed to give clear, upfront, generic advice on how much the advice might cost;
- 50% failed to give clear confirmation on how much advice would cost clients as individuals;
- 58% failed to give additional information on charges, such as whether ongoing charges may fluctuate;
- 31% of firms offering restricted advice (meaning they don’t advise on the full range of products and providers available) were not clear about that fact;
- 34% failed to give a clear explanation of the service they offer in return for an ongoing fee or their right to cancel.
The FCA has warned that some of us may actually have been misled about the cost of advice as a result of these failings.
What happens next?
There will be another review held in the third quarter of this year. If firms are still found to be failing to comply with the rules, there is the threat of further regulatory action.
Indeed, the FCA says it is likely two firms with “egregious failings” – one financial advisory, one wealth management firm – will be referred to the FCA’s enforcement financial crime division now.
Have you used a financial adviser since the RDR came into force? What was your experience? Are you happy to pay for financial advice? Let us know your thoughts in the Comments box below.