FCA: The good and bad of RDR implementation

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The Financial Conduct Authority has today published its early findings on how advisers are disclosing their advice services and charges, marking the first stage of its thematic review into RDR implementation.

Between February and April, the FCA sent 50 firms a questionnaire about how they explain to clients the advice services available and the associated charges.

The review found many firms’ propositions were in line with the new rules, but flagged concerns around a failure to disclose all advice charges in cash terms and the way firms were explaining their independent or restricted status.

Here we set out the FCA’s “early report card for the industry” which gives good and poor practice examples of how firms are approaching the RDR:

Adviser charging:

  • Good practice: One firm with a flat percentage charging structure gave a range of cash examples of the cost of advice based on investing £20,000, £50,000 or £100,000.
  • Bad practice: A firm described its adviser charge as a minimum of £1,500 to a maximum of £5,000 with no additional detail.

Independent status:

  • Poor practice: One firm describing itself as independent offered different service levels, ranging from a standard panel of managed funds and a bespoke portfolio for additional cost. In practice 99 per cent of clients were advised to invest in the managed funds. The FCA says the firm did not have the resources to provide an independent service for all clients.
  • Poor practice: Another firm explained its advice is restricted but did not sufficiently disclose the nature of the restriction. The firm could not make a general disclosure about its restriction as advisers were restricted in different ways, some by provider and some by product type.

Ongoing service:

  • Good practice: A firm provided three service options to clients, including one transactional service and two different levels of ongoing services. A table was used to show the differences between the two ongoing service levels, and the firm explained the cost of advice on necessary portfolio changes would be covered by the ongoing adviser charging.
  • Poor practice: Some firms explained a client’s right to stop ongoing services and charges by referring to “terminating the agreement”. The FCA says this phrase does not make it clear enough to clients they can stop ongoing advice charges or how they do this.

The FCA will review more adviser firms from October to test whether they have responded to its feedback.