7th April 2014
Despite the arrival of new laws last year, the majority of financial advisers are still not being clear with consumers on not only the service they offer but how much they are charging writes Philip Scott.
The City watchdog, the Financial Conduct Authority (FCA), latest review into financial advice has found the majority of firms, at a massive 73%, failed to provide the required information on the cost of advice.
On top of this the regulator found that businesses were being unclear on not only the type of service they offer but also in regards to what on-going services they provide.
The FCA has labelled the results a “wake-up call” for the industry and it is likely two firms with “egregious failings” will be referred to the FCA’s Enforcement and Financial Crime Division.
The new regulations
The start of 2013 ushered in one the biggest overhauls the UK’s retail financial services industry has ever witnessed. Dubbed the Retail Distribution Review (RDR), the new regulations were designed with the aim of making the price tag for investing and getting financial advice much more open and clear.
The goal was to ensure that consumers have the information needed to make informed decisions, and are clear on the costs and services of advisory firms.
Previously there was a perception among many investors that financial advice was free, as intermediaries earned a living from the commission providers such as pension firms and fund managers paid them.
But the RDR has banned this practice, as some of the less ethical financial advisers in the market were biasing their funds and pension recommendations towards those providers paying the highest commission.
As such the new rules should mean that investors working with a financial adviser are benefitting from knowing exactly what they are paying and what they are getting in return as consumers now have to pay for advice either via a percentage fee or an hourly rate, which can typically average around £150 plus.
Commenting on the findings of the latest review, Clive Adamson, director of supervision at the FCA says: “The RDR has involved a major change to the investment advice landscape. While we have seen a lot of positive progress and willingness by advisors to adapt to the new environment, I am disappointed with the results of our latest review looking at whether advisors are clear with their customers on costs and services provided.”
The latest review is the second of a three-cycle assessment of how firms have been operating since the arrival of the RDR.
In its latest review, the FCA also found:
The FCA will be starting the third phase of its review in the second half the year and if firms are not complying with the rules on disclosure, the FCA has said it will consider further regulatory action, including referrals to enforcement.
CHECKLIST: What you need to check and ask when seeking financial advice
Financial advisers have to charge a fee and they must be upfront about what and how much these fees are and agree in advance how they will be paid for. For example, you can agree an hourly rate, of an upfront fee or even let the adviser to take a percentage from the investment sum.
Costs can and will vary between firms so do your homework and find the best deal. Remember it is probably worth negotiating and many reputable businesses will be happy to meet for an initial consultation at no extra cost. You can find an independent financial adviser in your locality via unbiased.co.uk.
Is your financial adviser completely independent?
As a result of the new rules brought in by the RDR, advisers can be either independent, where they can recommend and advise on products across the whole of the market or they can be restricted. A restricted adviser is just that, and can only offer services and products from a limited range of providers. In its latest review the FCA found that 31% of firms offering a ‘restricted’ service were not being clear about their status, or the nature of the restriction.
What are their qualifications and are they FCA registered?
All financial advisers, restricted or independent must be registered with the regulator. Consumers will not have any comeback if they use an adviser who is not registered.
Ensure you check any potential adviser’s qualifications, after all, if you brought your car to a garage to be serviced, you would want to be confident the person looking at your vehicle is a suitably qualified mechanic. As outlined by the government’s Money Advice Service, all financial advisers must have a qualification at Level 4 or above of the national Qualifications and Credit Framework. They must also have a Statement of Professional Standing, which confirms that they are suitably qualified that they subscribe to a code of ethics and “have maintained competence through continuing professional development”.
What do you want to achieve?
Most of all ensure you know what your goals are when you see an adviser. Are you looking to save for retirement, invest for your children’s future. Having this clear in your mind will help your adviser set a realistic timeline for when you can potentially achieve them.