The Retail Distribution Review (RDR) introduced, among other things, new information disclosure requirements for financial advisers.
Firms must first give clients generic information about costs at the outset (e.g. whether they charge a fee or an hourly rate); followed by confirmation of the client’s own specific costs. Firms must also disclose whether they are ‘independent or ‘restricted’, i.e. whether they will consider products from the whole of the market.
The FSA/FCA planned to assess firms’ compliance with RDR by means of a three-stage Thematic Review. The first ‘cycle’ of this was carried out in July 2013, and found that firms did have some failings; but it conceded that was only to be expected as the requirements were so new. (A factsheet was subsequently provided.)
Now the FCA has completed the second cycle and published its results. The first part of this (TR14/5) looked at whether ‘independent’ firms were acting appropriately ‘independently’; it found the majority were.
The second part (TR14/6) was published on 7 April 2014 and looked at implementation of the disclosure requirements. On this point however the FCA was far from satisfied; finding that “a high proportion of firms are failing to give their clients the key information required under RDR ... In our view, the level of non-compliance we identified and the failure of firms to meet their regulatory requirements is unacceptable.”
The worst offenders, according to the FCA, in nearly all respects, were wealth managers and private banks.
Breakdown of figures
The failings identified in TR14/6 were similar to those uncovered six months before; but given the time that has passed, and the additional help that has since been provided, the FCA is less inclined to be merciful.
Considering the disclosure requirement described above, the FCA made the following findings:
- 58% of firms failed to give clients generic information about costs at the outset (e.g. whether they charge a percentage, fixed fee or hourly rate; and an approximate indication, in cash terms or hours worked, of what that might be).
- 50% of firms failed to give clear confirmation to the client of their own, individual costs.
- 58% of firms failed to meet other important requirements regarding the disclosure of costs (e.g. failing to mention if charges might fluctuate; or when charges are incurred)
- 31% of ‘restricted’ firms failed to disclose that they were offering a restricted service only, and/or failed to make clear the nature of their restriction.
- 34% of firms failed to explain the cost of an ongoing service, and/or what clients will actually receive for this, and/or the client’s right to cancel this service at any time.
(The first ‘cycle’ used a qualitative approach only, so there are no comparable 2013 figures available.)
What will happen next?
It is clear that the FCA expect firms to mend their ways urgently, and consider they have no excuse not to do so: “It is important that firms take note of our findings and act promptly … The findings are particularly disappointing as the disclosure requirements are clear and should be relatively straightforward.” Two firms have already been handed over to enforcement based on information coming out of the Thematic Review.
The two-page factsheet has now been supplemented with a video of FCA’s Clinton Askew and Rory Percival.
The FCA will begin its third and last ‘cycle’ of RDR compliance assessment with another Thematic Review commencing in Q3 2014. “By that point,” the regulator warns that “firms will have had more than adequate time to comply with these rules. If we identify firms that are still failing to meet the disclosure requirements, we will consider what further regulatory tools are appropriate, including referrals to enforcement.”