Following the introduction of the Retail Distribution Review (the RDR) on 31 December 2012, in January 2013 the FCA began a three-cycle thematic review into how firms implemented its requirements.
In the first two cycles the FCA focused on whether firms were complying with its independence and charging and service disclosure requirements. Cycles one and two found that firms had made progress in implementing the RDR, but identified some areas where they were failing to meet the FCA’s requirements, particularly around adviser charging disclosure, which the FCA says was disappointing.
The FCA has now completed the third cycle of this thematic review, which included:
- a repeated assessment of firms’ adviser charging and service disclosure;
- a new piece of work looking at how firms’ business models have developed in response to the RDR. The FCA focused on what firms provide to clients in return for an on-going adviser charge and how firms are delivering these on-going services in practice.
On 16 December 2014, the FCA published a report of the findings of its thematic review of adviser charging and services in the retail investment advice market. The report includes some good and poor practice examples of firms’ design and delivery of their on-going services.
The FCA has also published related independent consumer research, a report by NMG Consulting, on research into consumers’ expectations of on-going services and their experience of these being delivered and says that it .believes the findings are very instructive for both firms and consumers and it encourages them to review this research.
The FCA says that the findings from the review provide further evidence of the increasing professionalism of the financial advice sector. With regard to disclosure of services and adviser charges the FCA says that it noted a material improvement in firms’ disclosure of their services and charges, suggesting that the sector responded positively to the findings from cycle two. However it remains concerned that a significant proportion of firms are still failing to correctly disclose the total cost of on-going services in cash terms, or not providing an approximation of how long services may take when quoting hourly rates. When creating and reviewing information explaining services and charges to consumers, there is scope for firms to further consider its prominence, clarity and accessibility (in addition to compliance with the detailed disclosure rules).
The FCA says that it is encouraged by the findings from the third cycle of the review. It will continue to review firms' approach in its routine supervisory work and, where appropriate, will use its regulatory powers to intervene to correct instances where poor disclosure of services and charges threatens good consumer outcomes.
Given the importance of this area, following the third cycle of work, the FCA has referred one firm, who it believes has not sufficiently engaged with the changes the RDR requires, to its Enforcement and Financial Crime Division