Some advisers are not transparent enough about their charges, leaving customers confused and unable to compare and contrast prices, the Financial Conduct Authority (FCA) has alleged.
In the first part of its thematic review into how firms are implementing changes brought about by the Retail Distribution Review (RDR), the regulator found that there was a lack of understanding among retail investment clients about the cost of advice.
The FCA said: "We were pleased to find that many firms had tried to create documents clearly outlining the charges a client would pay. But we also found that some firms are not yet meeting our rules.
"Improvement was most needed in the disclosure of adviser charges."
Advisers were not, for example, outlining the cost of their services in cash terms often enough, the FCA said, which was important as consumers were struggling to work out the real meaning of percentages. This applied to both upfront and ongoing charges, the regulator said.
Some hourly rate structures were also failing to give customers a clear idea of how much they will end up paying, the FCA said.
"A client will not 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," it warned.
The review's findings followed last week's confession from CEO Martin Wheatley, who said he was worried that some advisers were operating on charging structures that were not RDR compliant.
The regulator suggested that advisers should draw up examples of typical costs and provide personalised quotes for their clients before they are liable for any charges.
It said: "The client should understand how much they will end up paying as early as is reasonably possible. The documentation should also make clear to the clients at what stage of the advice process charges begin to accrue."
The regulator also warned that firms must not allow clients to pay the adviser 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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