The FCA is currently carrying out a three stage thematic review to assess how firms have implemented the Retail Distribution Review (RDR).
The findings from the first stage of the review were published in July 2013. The FCA has recently completed the second stage of its review in which it focused on whether firms that are describing themselves as independent are acting independently in practice and whether firms are complying with the disclosure requirements. The FCA published a report on the independence requirements in March. The FCA has now published a further report which focuses on the disclosure requirements and the failings that have been identified. The report is entitled Thematic Review 14/6: Supervising retail investment firms: being clear about adviser charges and services (TR14/6).
In TR14/6, the FCA states that it found that a high proportion of firms are failing to correctly disclose to clients the cost of their advice, the type of service they offer (independent or restricted) and the nature of the on-going service they provide. In particular, it found that:
- 58% of firms failed to give clients clear up-front generic information on how much their advice might cost;
- 50% of firms failed to give clients clear confirmation of how much the advice would cost them specifically as individuals; and
- 58% of firms failed to meet other important requirements relating to the disclosure of their charges.
The FCA concludes that the level of non-compliance it has identified among the firms reviewed and the failure of firms to meet their regulatory obligations is “unacceptable”. As a result, the FCA is likely to refer two firms, a financial adviser and a wealth manager, with “egregious failings” to its Enforcement and Financial Crime Division.
To help firms further, the FCA has made available a video which sets out the disclosure requirements and its expectations of firms.
The third and final stage of the FCA’s thematic review of the RDR is due to be carried out early in the second half of 2014. The FCA warns that by the third cycle of its review, firms should have had more than adequate time to comply with the rules. If it identifies firms that are still failing to meet the disclosure requirements, it will consider what further regulatory tools are appropriate, including referrals to enforcement.
View Thematic Review 14/6: Supervising retail investment firms: being clear about adviser charges and services, 7 April 2014