latest Content

Disclosure – in the FCA’s sights

Disclosure has been highlighted by the FCA as an area where advisers are failing. Transparent documentation is a simple but key means to ensure your firm is compliant, says Rebecca Prestage, head of policy for The Consulting Consortium

The publication of the Financial Conduct Authority’s (FCA) second stage of the RDR post- implementation review has highlighted that advisers have more work to do to ensure that they are adequately disclosing their services and charges to clients.

Complying with the independence and restricted rules was once thought to be the main stickler, but following the review it now appears that
it is the seemingly simpler
rule of disclosing services and charges to clients where firms are falling foul. The reason for this is unclear; perhaps firms have been too focused on ensuring that they are adhering to the rules of independence, or operating a commercially viable charging model, rather than how they are going to adequately explain this to their customers.

Whatever the reasons for firms coming up short, with increased transparency as one of the key outcomes of the RDR, disclosure is an areawhere the regulator will be focusing itsattention.

Regulatory expectations With all the rules and regulations to comply with, successful,compliant firms are aware of where the regulator’sexpectations are higher and, therefore, canput measures in place toensure they go aboveandbeyond ticking the box. Often this is in the straightforward areas; and in the case of disclosure ‘documentation’ is the key.

In the FCA’s review, 73%
of firms were found to have failed to provide clients with the required information about services and/or charges. Transparent disclosure (and therefore treating customers fairly) should be achieved through a firm’s generic disclosure document and individual illustrations, and are supposed to allow the customer to compare service costs and levels with competing firms.

Adequate documentation

Documentation has long been an area where advisory firms fall down. Whether
in documenting suitability appropriately or adequate competency records, the FCA has often found discrepancies in firms’ records and record keeping. This means that advisers and firms are frequently unable to evidence that they are compliant and providing good outcomes for their customers.

Firms need to ensure that information relating to services and charges (including any ongoing charges) is clear and not misleading, and that the information is presented to customers in a way that they can understand and relate to. This means using examples that are relevant to their situation and expressing the charges in cash terms.

Firms must also ensure that
a copy of both the generic disclosure document and the individual disclosure document are recorded within the client file, to illustrate to the regulatorthat disclosure requirements are being met. This also provides an evidential record for firms’ own benefit.

Professional, clear and engaging

Creating disclosure documents that inform and engage with customers is not rocket science. Firms should look at the way in which information is providedto clients. Visually appealing documents that are designed to highlight different service levels or adviser charges will help clients to understand
and hopefully allow them to make effective comparisons with other firms. The more professional, clear and transparent a firm’s disclosure documentation, the more favourably this will reflect on the business.

Round three of the RDR post-implementation review is imminent and so the regulator will expect all firms to have
fully got to grips with their disclosure requirements. If firms are still coming up short, we should expect the regulator to lose patience and take a tough stance on non-compliance.

For more on The Consulting Consortium


More Articles Like This