Last week we reported about the outcome of the Financial Conduct Authority (FCA) thematic review on the disclosure of advisory costs.
In reviewing the advisory charges disclosure of 113 firms the FCA concluded that 73% failed to provide the required generic information on how they charge for advice or failed to clearly confirm the specific cost of advice to their individual clients in a timely manner.
The Times this weekend reported on the subject in some detail and highlighted some “failings” in the way advisers are communicating their fees to clients.
Leaving aside an obvious error in a calculation about VAT being added to the cost of “setting up a pension drawdown scheme”, which they should have known is an exempt activity, they key criticisms were;
-Advisers charging a percentage of the amount invested. This was described as a “cunning way to disguise the true cost as it is widely recognised that many people don’t understand how percentages work.”
The advice was to always ask for examples in pounds and pence, which interestingly is already an FCA requirement;
-Hourly rates were described as “not much use if you are not given an indication of the number of hours your work is going to take.” Couldn’t agree more; our experience is that clients what to know the total costs and not be subject to the downside of “work expanding to fill the time available;”
– “Your adviser admits (pejorative word could have said “tells you”) how much you will be charged initially but fails to mention that you have signed up to pay for an annual review.”
The latter point it was suggested that will provide “a welcome ongoing stream of income to your adviser, straight out of your bank balance.”
Sadly, there was no recognition of the value of the ongoing review service but understandable given the worrying results of the FCA thematic review.
The author of the article David Budworth, Deputy Money Editor, was right in saying that the results were “depressing” but it should also be recognised that very many firms have gone to great lengths not only to disclose in a timely and understandable manner their advisory charges but have also designed and implemented some very valuable services indeed.
