We're six months into the post-RDR world now and, guess what, the regulator appears to be happy. Well, quite happy. Here is what it has found so far...
The Financial Conduct Authority (FCA) is currently doing a three-stage thematic review to assess firms' overall approaches to changes following the Retail Distribution Review (RDR). It has completed the first stage and, today, it published its report.
Here, IFAonline picks out ten key things the FCA uncovered...
1 General findings
The FCA is happy. Though it has some concerns (see all remaining points!), it said firms have made "a lot of progress". Generally, it said, firms had acted to implement the new requirements and were open to its feedback. "We were pleased to see that many firms' propositions were in line with the new rules. Some firms had also tried to make their disclosure material clear and engaging," it concluded. This is a bit of a hat-tip to all those firms who engaged with the RDR process. However, there were some areas of concern...
Ten things the FCA has noticed since RDR
2 The use of cash terms
Communicating charges in pounds and pence significantly helps consumer understanding, the FCA found, so, since the launch of RDR, firms have been required to disclose their charging structures both in writing and, where possible, in cash terms.
Though most firms are doing this, the FCA said some aren't. A key finding was that, though the adviser charge for the initial advice was in cash terms, the ongoing adviser charge was not. This typically applied to firms whose ongoing charge is a percentage, for example 0.5%, of the amount invested, the FCA said.
Example of good adviser charge disclosure
One firm that had a flat percentage charging structure provided a range of cash examples linked to how much a client wanted to invest. It gave scenarios of investing £20,000, £50,000 or £100,000. We felt that a client who had this information would be better able to understand what the costs are likely to be for their particular financial situation than if they had a single example that might not be so relevant.
3 Hourly rates
The FCA said it found some firms' charging structures that included hourly rates did not provide sufficient information for a client to understand the likely, final cost to them. According to the regulator, clients won't necessarily understand what the approximate cost may be to them for the advice unless there is an estimated indication of the number of hours it will take to provide the service. The FCA implied firms were not providing this information.
4 ‘In good time'
Under RDR disclosure rules, firms must provide clients with their generic charging structures in good time before making a personal recommendation. This should allow a client to make a judgement on the value of the service to be provided.
Most firms the FCA assessed either explained their charging model at the initial meeting or before it. The FCA liked that. However, one firm (yes, just one) did not provide its charging structure until the second meeting, at the same time as delivering its recommendation. "We felt that this did not put the client in an informed position early enough in the advice process," the FCA said.
The FCA found two firms that allowed clients to pay the adviser charge for advice on a single premium product by instalments. Slapped wrists. As the FCA pointed out, since RDR, advisers should be clear that they cannot charge for advice on a single premium product by instalments. Since the end of last year, clients can only pay by instalments for advice on regular contribution investments.
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