Tuesday, 16 December 2014 10:52
Firm referred to regulator's financial crimes unit
The financial crime division of the FCA will investigate an advice firm following its latest probe into fees.
Sanctions could be taken against the unnamed business for failing to sufficiently engage with the changes required by the RDR.
The FCA report stated: "Despite the fact that most in the advisory sector have taken on-board the findings of two previous thematic reviews, which uncovered significant and widespread failings, one firm included in this round of supervisory work has been referred to Enforcement.
"It was felt that they had not sufficiently engaged with the changes required by the RDR. Given the importance of this area, following the third cycle of work, we have referred one firm to our Enforcement and Financial Crime Division."
It warned other companies that are not complying with RDR they could face similar action.
The report stated: "Firms should be aware that we will continue to review their approach in our routine supervisory work and, where appropriate, we will use our regulatory powers to intervene to correct instances where poor disclosure of services and charges threatens good consumer outcomes."
The regulator said there had been "a material improvement in firms' disclosure of their services and charges, suggesting that the sector responded positively to the findings" of a previous review.
But it added: "We remain concerned that a significant proportion of firms are still failing to correctly disclose the total cost of on-going services in cash terms, or not providing an approximation of how long services may take when quoting hourly rates."
There were three key areas, which the FCA highlighted as having a high failure rate:
• Costs of on-going services: 35% of firms did not disclose the total adviser charge for their on-going services in cash terms relevant to the individual client (compared to 41% in cycle two). This was one of the main failings in both of the previous review cycles.
• Hourly rates: Of the firms using hourly rates within their charging structure, 57% did not provide an approximation of how long each service was likely to take (compared to 73% in cycle two).
The FCA report stated: "This failing is mitigated by the fact that, in practice, many of these firms' primary method of charging clients is on a percentage basis, which they disclosed clearly and compliantly. Within these firms, hourly rates were often used for non-standard, complex or ad-hoc work, so the lack of clarity is likely to only affect a small proportion of their clients. However, it is important firms ensure all of the charging methods included in their disclosure documents are clear for clients."
• Wide ranges: 23% of firms use wide ranges in their generic disclosure. For example, stating that they charged between £X and £Y for a Financial Planning report.
In the wealth management sector the FCA found "too many firms operating on a percentage charging basis are failing to provide examples in cash terms in their generic charging structures" - typically in their 'rate cards'.
Although the industry-wide failings in this area were 15% (initial charges) and 18% (on-going charges), the equivalent figures for wealth management firms were 36% and 50% respectively.
Despite these issues, overall, the findings demonstrated that the sector has made improvements which "point to increasing professional standards and should mean those seeking advice are better placed to understand the nature of a firm's services and how much they will cost".
The FCA said: "We are encouraged by the findings from this third cycle of work."
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