In a large-scale review of suitability of advice, which concluded in May 2017, the Financial Conduct Authority (FCA) concluded that suitable advice was being given in 93.1% of cases. The study encompassed more than 1,100 cases from more than 600 advisory firms.
Where advice was identified as being unsuitable or unclear, i.e. in the other 6.9% of cases, the FCA says that the main areas of concern were: whether clients’ risk profiles were being correctly identified, and replacement contracts being recommended where clients were advised to give up valuable benefits and/or incur higher costs without good reason.
However, in a recent interview, the regulator’s director of supervision cautioned firms against becoming complacent about the results of the study.
Megan Butler commented:
“I don’t think we will ever declare victory on the suitability of advice, or disclosure for that matter.”
Here, the FCA director is also referring to the fact that the review uncovered less positive results regarding firms’ quality of disclosure, with 41.7% of the cases reviewed found to breach disclosure rules in some way.
Of course, this means that the study findings indicated that the regulator’s rules on disclosure had been met in only 58.3% of cases. Two specific areas of concern regarding disclosure were mentioned by the FCA in its report: some firms operating an hourly charging structure were not providing clients with an estimate of how long each service is likely to take, and some firms were using charging structures which have a wide range of possible charges.
Disclosure standards were noticeably poorer in smaller advisory firms, in independent advice firms (as opposed to those offering restricted advice) and in directly authorised firms (as opposed to firms who are members of advice networks).
Ms Butler went on to highlight that there will be another FCA suitability review in 2018, with the results to be published in 2019. She added that:
“Unless you keep on at it, people don’t do it. So, I will never declare victory. On suitability of advice, we could go out and find 99 per cent is fine. I would say great, but I’m going to come and look in two years’ time. Because if I don’t, when I come and look in eight years’ time, I wouldn’t be surprised if it’s gone down to 40 per cent.”
Pension transfers are also one area where the regulator has seen less positive results regarding suitability of advice. The FCA graded the recommendation to transfer out of a final salary (defined benefit) scheme as ‘unsuitable’ or ‘unclear’ in more than half of the cases it reviewed.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.