The Financial Conduct Authority (FCA) has published the results of one of its largest reviews of the standard of advice being given by authorised firms. The regulator reviewed some 1,142 cases from 656 firms, and says that in 93.1% of cases, it believes that the firm’s advice was suitable. In only 4.3% of cases was the advice deemed to be unsuitable, and in the remaining 2.5% of cases the advice was unclear – there was not enough information on file for the reviewer to know for sure whether the advice was suitable.
Where advice was identified as being unsuitable or unclear, 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.
The FCA says of the suitability results in general:
“We consider that these are positive results for the sector. We believe they are a result of the successful adoption of the Retail Distribution Review by advisers and reinforced by our previous supervisory and enforcement activities.”
However, the FCA found less encouraging results when it looked at the standard of disclosure in these 1,142 cases. In just over half of cases (52.9%), the FCA considered that its disclosure requirements had been met, however the standard of disclosure was “unacceptable” in a significant minority of cases (41.7%). In 5.4 of cases it was “uncertain” whether the disclosure rules had been complied with.
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).
Two specific areas of concern regarding disclosure are mentioned by the FCA in its report: some firms operating an hourly charging structure are not providing clients with an estimate of how long each service is likely to take, and some firms are using charging structures which have a wide range of possible charges.
The FCA did not issue examples of good and poor practice alongside its results, but it does expect to do this over the next 12 months or so.
The regulator also announced that it intends to repeat its suitability review in 2019, when it will assess advice given by firms during 2018.
Linda Woodall, director of financial advice at the FCA, explained how the regulator intended to assist smaller firms to meet its requirements on suitability and disclosure, by saying:
“We will do that through our tried and trusted routes. We have already fed back to individual firms but we have our live and local events and our regulatory round up and other means of communicating with that sector and we will use those.
“We recognise that it is hard for a small firm without a compliance department to get fully up to speed with the regulatory requirements and what they might look like in practice but that’s where we have and will continue with our very comprehensive communication arrangements.”
Ms Woodall did however rule out introducing a mandatory fee disclosure template.
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.