Anyone who has not been living in sublime isolation since April 2015 will be aware that one of the FCA’s primary areas of focus continues to be DB Transfer advice. Most recently (6 December 2018 – read it here and our summary here), the FCA published its latest findings on the poor quality of much of the transfer advice provided to clients.
What most readers could well have missed was the fleeting mention of disclosure issues that were also found in the transfer cases reviewed. The FCA found:
- only 29.2% of firms’ disclosure was compliant;
- 9.1% was unclear;
- a whopping 61.7% was non-compliant!
The disclosure failings were driven in part by failings in firms’ standard documentation, particularly in the way firms present initial and ongoing fees.
Even allowing for the fact that these findings arose from a targeted selection of firms, the results are entirely consistent with what we often find when we review firms’ disclosure processes and documentation.
Some six years after RDR changed how firms must charge for advice and how services and costs must be disclosed, we still regularly find firms with fee structures and disclosure documentation that are not compliant.
Common fee issues
- vaguely defined structure – usually identified by the use of phrases such as “up to” or “typically”;
- boundary issues – usually associated with percentage fee basis, where a client investing, say, £200,001 would be charged less than a client investing £200,000;
- mystery fees – some firms state that they charge more for ‘complex’ cases without defining what that means or what they would charge;
- ongoing fees that are differentiated for different service levels when, in reality, those service levels are essentially the same;
- firms not charging the fee that is stated in the published fee scale – any deviation from the published scale should be exceptional, declared to the client, logged centrally and for good documented reasons – not simply to ‘secure the business’ or because ‘the client asked for a discount’. (If fees are often charged differently, it is likely that the fee scale is wrong and needs to be reviewed.)
Common disclosure issues
- client agreement is not actually an agreement, merely a terms of business;
- document that requires client signature does not actually state the service and costs or refer to a document that does;
- disclosure not issued on time – it should be at the earliest opportunity;
- even where issued on time, some firms do not have a means by which they can prove when it was issued;
- the description of the firm’s independent status has not been updated to reflect the new MiFID II definition;
- documentation not updated for IDD;
- GDPR / Data Protection 2018 not dealt with correctly.