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Financial Advisory Industry Review Shows Room for Improvement

The Financial Conduct Authority (FCA) recently announced results of a review into commission disclosures by Financial Advisers. The latest FCA review is the second of a three cycle assessment of how firms have implemented the disclosure elements of the Retail Distribution Review.

The Retail Distribution Review, which came into force at the beginning of 2013, introduced new disclosure requirements to improve transparency for consumers. The aim was to ensure that consumers have the information they need to make informed decisions, particularly in relation to the costs and services provided by advisory firms; and so improve competition in the market.

However, in the latest research, despite sufficient time and the straightforward nature of the requirements, issues remain. In particular, the second cycle found that:

  • 58% of firms failed to give clients clear upfront generic information on how much their advice might cost
  • 50% of firms failed to give clients clear confirmation on how much advice would cost them as individuals
  • 58% of firms failed to give additional information on charges, for example not highlighting that on-going charges may fluctuate
  • 31% of firms offering a ‘restricted’ service (they cannot advise on the full range of financial products and providers available) were not being clear they were restricted, or the nature of the restriction; and
  • 34% of firms failed to give clients a clear explanation of the service they offer in return for an on-going fee and/or their right to cancel this service.

Whilst failings appear widespread across the industry, wealth managers and private banks performed worse than other firms in nearly all aspects.

The failings identified in the FCA’s review suggest some consumers could be unaware of, or even misled, in relation to the cost of advice (both initial and on-going), the type of service offered by a firm (i.e. whether it’s 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.

It is likely that as a result of failings uncovered in the second cycle of the review, one financial advisory firm and one wealth management firm will be referred to the FCA’s Enforcement and Financial Crime Division.

Craig McAdam is a Business Crime Solicitor at Slater and Gordon Lawyers in Manchester. If you think you have been misled by your Financial Adviser (as to cost or nature of their advice), Business Crime Lawyers at Slater and Gordon offer a free initial 30 minute consultation and are available to assist businesses 24 hours a day 7 days a week. Call freephone 0800 916 9054 or contact us online and we will call you.

Slater and Gordon is a nationwide law firm with offices in London, Manchester, Liverpool, Birmingham, Sheffield, Milton Keynes, Bristol, Cambridge, Edinburgh, Cardiff, Halifax, Newcastle, Wakefield & meeting rooms in Bramhall, Cheshire.

Business Crime

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