The FCA’s latest review into disclosure doesn’t shed any new light, says Compliance Consultant Lee Werrell. Surely enough is enough?

MiFID IIYou’d think that, after over 25 years, advisers would know how to provide the most fundamental of information in the client’s buying cycle – the cost of doing business with that firm, now and in the future. Well, it seems nobody has told the regulator.



How We Got To This Point

Many advisers may remember the 4th July 1988, the day the Financial Services Act 1986 was made effective. All of the old guard cried that they would never sell anything if they had to disclose their commissions to clients. A prophecy that proved false over time.

1994 saw “Reason Why” Letters introduced and advisors claimed that business would collapse if they had to spend time writing to explain to clients exactly why they had recommended the products which they had.  Another prophecy that proved false over time.

In 2007 the first incarnation of MiFID was introduced, radically removing a lot of ambiguity from the handbooks and implementing new and clearer rules, including COBS 6 and the introduction of commissions in “cash terms” and providing this in a “durable medium” at “as close as practicable to the time that it sells, personally recommends or arranges the sale of a packaged product.”


Are We No Further Forward?

The FCA’s latest review into disclosure by financial advisers has found that a massive 73% of firms fail to provide the required information on the cost of advice to clients, either in the right way or in some cases, in any way at all.

The failings identified in the FCA’s review suggest that some consumers could be unaware of, or even mis-led, in relation to

  • The cost of initial and/or ongoing advice;
  • The type of service offered by a firm (i.e. independent or restricted);
  • The nature of a firm’s restriction (if applicable); or
  • The service they can expect to receive in return for the on-going fee.

“RDR has involved a major change to the investment advice landscape,” Clive Adamson, Director of Supervision at the FCA, said recently.  “While we have seen a lot of positive progress and willingness by advisors to adapt to the new environment, I am disappointed with the results of our latest review looking at whether advisors are clear with their customers on costs and services provided.”


“We will be helping the industry again to understand our requirements with the release of a video guide, but these results are a wake-up call and we expect the industry to respond.”

This recent review is the second of a three-part assessment of how firms have implemented the disclosure elements of the Retail Distribution Review (RDR).  The RDR, which came into force on 1st January 2013, introduced new disclosure requirements to improve transparency for consumers. The aim was to improve competition in the market by ensuring that consumers have the information needed to make informed decisions, as well as being clear on the costs and services of advisory firms.

The first part of research, published in July 2013, found that progress had been made and that there was a general willingness to adapt to new rules.  However, common issues were uncovered, and further examples of good and poor practice were produced to help firms. These firms seem to have decided to ignore TR13/5 and the FCA Factsheet 007 on “Disclosing your firm’s charges and services” entirely.


Questions, Questions

On a number of articles, advisers seem to be making their point that they don’t know what size of assets/funds etc the client holds, and so they cannot quote a charge. My question to them would be, why are you discussing specific prices without having a conceptual agreement in the first place? Surely the initial (free) interview when you present and explain the generic costing is to establish these facts? However it seems that some IFAs want to “compete on price alone” by comparing themselves against others in their area.

Could part of the problem be that many advisers still think they have to get their 0.5%/3%/5% or whatever from pre-RDR days converted exactly into a post RDR fee? Frankly, the world has moved on.

Most professional salesman understand that you need to get a conceptual agreement from the client involving a full understanding of their goals and aspirations etc before you can provide an exact cost; one which adds value to the client. Yes, a menu of charges is a good idea (typical costs) but this can be sensibly constructed without committing the adviser or firm to any specific combination until the fundamental needs have been established. If advisers who can’t get a handle on disclosure, and treat clients with some respect, or who want to advertise themselves like a Kebab Shop and fail to constructively inform the clients what the charges are and why the charge is being applied, or what benefits there are for the service, then they deserve to be referred to enforcement.


Maybe there is an issue in the perceived lack of a robust and coherent level of leadership both within firms and across the industry or possibly that sales skills have suffered because of the importance placed on higher level qualifications? Is compliance actually being proactive or relying on the status quo and not making waves?

The Findings

The findings in TR14/6 “Supervising retail investment firms: being clear about adviser charges and services” reads like a first review of an unregulated industry. The basic and straightforward nature of the requirements, remain as unaddressed issues.  In particular, the regulators found that:

  • 58% of firms failed to give clients clear upfront generic information on how much their advice might cost:
  • Firms using a percentage-based charging structure did not provide examples in cash terms within their initial disclosure document (24% failed to disclose their initial fees and 30% failed to disclose their ongoing fees).



    •  73% of firms that used an hourly rate did not provide an approximate indication of the number of hours that the provision of each service was likely to require.
    •  62% of firms that used an indicative hourly rate did not provide the basis on which it may vary.
    • 45% of firms that offered more than one option of calculating the fee within their charging structure did not made it clear what basis would be applied and when.
    • 22% of firms surveyed did not appear to provide the client-specific disclosure as soon as practicable.
    • 40% of firms using a percentage-based charging structure for their ongoing service failed to disclose that the fee would increase as the fund grows.
    • 20% of firms’ documents failed to clearly disclose what service a client would receive in return for the ongoing fee.
    • 18% of firms’ documents failed to disclose that the client could cancel the ongoing service, or how they would go about doing so.
    • 11% of firms surveyed did not appear to have a robust procedure for ensuring that they deliver the ongoing service that they have agreed with their clients.

And to top it all……

  •  31% of firms offering a ‘restricted’ service were not being clear they were restricted, or the nature of the restriction, including some who:

o   Did not disclose, in a durable medium and/or in a timely manner, that they were restricted.

o   Did not use the word ‘restricted’ in their disclosure.

o   Failed to clearly disclose the nature of the restriction.

o   Provided contradictory information on the nature of their restriction

None of these findings are rocket science – and most, with the right compliance support, can easily be avoided. Yes, the industry has been pushing for better qualifications to provide a better service to client’s as well as raising the barriers for entry as advisers are dealing with the Great British public.


Overall, advisers and firms today are better equipped to deal with the hard earned money of client’s than they were even 5 years ago. The public as a whole needs to have greater confidence in those that advise and manage their money, but, there seems to be a lot of aiming at one’s own feet and pulling the trigger. Surely, enough is enough.

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