Changes to how firms disclose services and costs

The FCA has been doing background research over the past couple of years around the effectiveness of firms’ communications with clients. You can read more on this work here.

The research has led to the publication of guidance on a number of areas, not least around how firms can improve the effectiveness of suitabillity reports, making them shorter yet clearer.

The FCA has also concluded that some changes are required to the way that firms disclose information on services and costs. Specifically, the current templates for IDD, CIDD and SCDD will be removed from the FCA handbook with effect from 27 March 2017. 

These templates have been used pretty much ‘as is’ by many firms as an easy way to ensure that all required disclosures are made. However, the templates were intended as guides to an appropriate structure and firms were expected to personalise the templates rather than slavishly follow the content. Firms have been permitted to present the required disclosures in an entirely different way, the only condition being that they could not then use the Keyfacts logo on documents that were structured in a different way to the templates.

It is undoubtedly the case that the templated documents always looked ‘compliancey’ and made every firm using them look boringly similar to clients, or maybe just boring! So, those firms that have created their own bespoke disclosure documents probably stand out from the crowd better and also present the required information in a way that clients relate to and understand better.

It is important to understand that there are no changes to what firms must disclose – the removal of the templates is simply intended to encourage all firms to create their own bespoke versions instead of relying on the template structure. So firms that still use the template based disclosure should consider how best to present the required information following the withdrawal of the templates on 27 March 2017.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

We do not think that the removal of the templates is much of a loss. While they provide an ‘off the shelf’ way to comply with the disclosure rules, they have never, in our view, been very client friendly or effective.

Many of our clients already use disclosure documents that do not follow the template format and are probably more effective and targetted as a result. Those firms that have yet to create bespoke disclosure literature should do so, not only because the templates are being withdrawn but, more importantly, because literature created specifically for the firm is likely to be more client friendly and effective in ensuring that clients fully understand the firms’ service offering.

We recommend a format along the following lines.

  • Who we are / what we do
    One document outlining the firm and its services and highlighting the benefits not the features – for example instead of simply declaring the firm’s independent status, make something of it. What does that mean for the client? Spell it out but remember that every document must be clear, fair and not misleading.

  • What it costs
    This is the fee agreement. One document describing the firm’s initial services in detail (with some passing reference to ongoing service) and the costs of each element of the service (bearing in mind the FCA’s requirements in this respect) and with space for a client signature authorising the service(s) to be provided and the cost of the service(s).

  • Important information
    One document (that need be no more than two sides of A4) disclosing the ‘compliance’ stuff – name and address of the firm, regulatory statement etc. , that is, much of the content of what firms currently call a Terms of Business or a Client Agreement but only comprising the compliance stuff that is left after stripping out the key information about who/what and how much!

  • Ongoing services
    This is one document that the client signs to confirm the level of ongoing service that they want and to confirm authorisation for that ongoing service. The service should be detailed  in terms of what is provided, how and how often and should be mindful of the steps required to achieve VAT exempt intermediation. The service description should not include things that firms have to do, for example, retain records. And care should be taken to avoid including things that cannot be guaranteed, for example, “calls will be dealt with within x hours”, or cannot be withheld, for example, “access to an adviser”.

Action Required By You

  • If you currently use template based disclosure documents, consider how best to migrate to more client friendly and firm specific documents.
  • Consider the approach outlined above.
  • If you already have bespoke disclosure literature, now could be a good time to review them to ensure they are as effective as possible.
  • Contact ATEB if you would like to have some help in creating an effective set of literature or if you would value our opinion on how you could improve your current disclosure documents.
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About the Author

Technical Manager - Often referred to as the Oracle or the Sage, Alistair has a wealth of financial services experience. He is our go-to Technical Manager and enjoys nothing more than a complicated conundrum. Feel free to test his renowned knowledge by getting in touch.

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