TR14/21: Retail investment advice: Adviser charging and services

Following the introduction of the Retail Distribution Review on 31 December 2012, in January 2013 we began a three-cycle thematic review into how firms implemented its requirements.

In the first two cycles we focused on whether firms were complying with our independence and charging and service disclosure requirements.

Cycles one and two found that firms had made progress in implementing the RDR, but identified some areas where they were failing to meet our requirements, particularly around adviser charging disclosure, which was disappointing.

We have now completed the third cycle of this thematic review, which included:

  • A repeated assessment of firms’ adviser charging and service disclosure.
  • A new piece of work looking at how firms’ business models have developed in response to the RDR. We focused on what firms provide to clients in return for an ongoing adviser charge and how firms are delivering these ongoing services in practice.

We have published TR14/21 [PDF] which sets out our findings, including some good and poor practice examples of firms’ design and delivery of their ongoing services.

We have also published some independent consumer research, Retail Investment Advice: Assessment of Ongoing Services carried out by NMG Consulting, into consumers’ expectations of ongoing services and their experience of these being delivered. We believe the findings are very instructive for both firms and consumers and we encourage them to review this research.

TR14/21 [PDF]

Who should read this?

  • Firms providing retail investment advice
  • Consumer representative groups
  • Individual consumers

Our approach

We requested questionnaires from 110 firms and carried out a desk based review of these, as well as firms’ disclosure documentation. We assessed disclosure compliance using the assessment template we published in June 2014. We undertook a more detailed assessment of the design and delivery of the ongoing services of 12 firms.

We also commissioned NMG Consulting to conduct consumer research into how consumers interact with advisory firms’ ongoing service propositions.

What were our findings?

Overall, we believe the findings from this review provide further evidence of the increasing professionalism of the financial advice sector.

Disclosure of services and adviser charges

  • We were pleased to note a material improvement in firms’ disclosure of their services and charges, suggesting that the sector responded positively to the findings from cycle two.
  • We remain concerned that a significant proportion of firms are still failing to correctly disclose the total cost of ongoing services in cash terms, or not providing an approximation of how long services may take when quoting hourly rates.
  • When creating and reviewing information explaining services and charges to consumers, there is scope for firms to further consider its prominence, clarity and accessibility (in addition to compliance with the detailed disclosure rules).

Design and delivery of firms’ ongoing services

  • Our consumer research highlighted the importance many consumers place on the ongoing service element of financial advice. A majority of consumers, across different levels of wealth, are satisfied with their ongoing service and its value acts as an important motivator in their decision to pay for financial advice.
  • The research also suggests that advisers can be more confident about disclosing their charges, as consumers value the peace of mind that comes from their arrangements being looked after and would be unwilling to give this up to avoid the associated cost.
  • Most firms had considered the logistical challenges of delivering multiple services to a large number of clients on an ongoing basis and had put in place systems and processes to support this. We saw isolated examples of firms receiving an ongoing adviser charge and not providing a genuine service in return.

Next steps

We are encouraged by the findings from this third cycle of work, however firms should be aware that we will continue to review their approach in our routine supervisory work.

We will continue to seek further improvements through our ongoing programme of engagement with trade and professional bodies, including highlighting the findings of our consumer research and good and poor practice examples and associated supportive materials.

More information

Since the RDR Thematic Review began in early 2013 we have produced communications and supportive materials based on our findings and engagement with the financial advice sector, to help firms understand and comply with the RDR rules.

We have collated a web page with links to information associated with all three cycles of the RDR Thematic Review, as well as the Post-Implementation Review.