The FCA has recently completed its second cycle of reviewing financial advisory firm’s disclosure documents. The review focused upon how firms are disclosing their service proposition and charging structure to clients.
It is clear from their review that they are unhappy with the current standard of documentation given that feedback and guidance had been issued from the first cycle of reviews – We recommend you to take action now.
What were the FCA’s findings?
The review found the majority of firms failed to correctly provide the required information on the cost of advice, the type of service offered (independent or restricted) and what on-going services firms would provide.
The FCA found that firms failed to give:
- clear upfront generic information on how much their advice might cost;
- clients clear confirmation on how much advice would cost them as individuals; for example if a firm
- is charging a percentage of the amount invested, it should also show this amount in cash terms
- if charging by an hourly rate, it must provide an approximate indication of the number of hours the service is likely to require
- if there is a combination of different charging structures used, a clear indication of total cost in cash terms should be given
- additional information on charges, for example not highlighting that on-going charges may fluctuate,
- specifically where charges are based upon a percentage of assets managed, an example must be provided in cash terms
- it should be clear when the charges will be incurred
- clients a clear explanation of the service they offer in return for an ongoing fee and/or their right to cancel this service, and how the service is cancelled.
The FCA also found that firms:
- offering a ‘restricted’ service were not being clear they were restricted or the nature of the restriction.
The FCA plan to undertake a further cycle of reviews in respect of disclosure to clients, they have also stated that stronger action will be taken against firms who fail to meet the required standards.
We recommend that your firm reviews its disclosure documentation to ensure it meets the FCA’s standards; your firm should also document clear evidence of this review and any actions taken. To assist firms the FCA has produced a template and supporting notes which can be used to assess your firms disclosure documentation, alternatively please contact us to see how we may assist you with this review and any wider compliance support you may need.