British regulators say that financial firms still have more work to do implementing reforms to outlaw embedded commissions and requiring firms to charge directly for advice.
The Financial Conduct Authority (FCA) published a report Thursday setting out the results of its preliminary look at the implementation of its reforms, known as the Retail Distribution Review (RDR), which took effect at the start of this year. The report, drawing on research carried out between February and April, examines how advisors have implemented some of the RDR’s requirements.
It found that the majority of firms have made progress, and that there was a willingness to adapt to the new rules. However, it also notes some common issues with implementation. For example, it says that some firms are disclosing charges in percentage terms, rather than dollar terms, which some consumers find confusing. Also, firms are not clearly explaining what customers can expect to receive for ongoing fees.
“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,” the report notes. “We identified two main areas where more needed to be done. First, while there was evidence of good practice, some firms were not providing clients with some or all charges in cash terms. Second, some firms fell down by not being clear what ongoing services they would provide.”
The FCA also found firms describing themselves as independent, but in fact choosing products from a limited number of providers or products. “We were also concerned that some firms, while describing themselves as independent, were not offering a truly independent service. Some firms providing restricted advice were not adequately describing the nature of the firm’s restriction,” the report says.
“The research for this report was undertaken just a few months after the implementation of RDR, so provides an early snapshot of what has changed. This early view shows that, while firms have acted, they still have more to do to if a customer is going to be in the best possible position to understand the price they will pay and the service they will get for that price,” said Clive Adamson, director of supervision at the FCA.
“Firms should carefully consider the feedback covered in this report. We strongly encourage advisers to look at the examples highlighted, and take immediate steps to help their customers better understand the charges and services being offered,” he added.
Along with its own research, the FCA also published research it commissioned from an outside firm, which looks at how effective the documents and materials produced by firms are at helping consumers understand the charges they will pay and the service they will receive. It says this research “reinforces the need for firms to provide clear and concise information if consumers are to understand and, crucially, compare services and prices.”
The FCA is also sending a factsheet to over 6,000 advisory firms to help them assess whether the common issues found apply to them. The regulator says it plans to carry out further assessments with a wider sample of firms starting in October to test whether firms have acted on this feedback.
The report published Thursday is the first of three reviews planned for the next year to assess what progress advisory firms are making to meet the new RDR rules.