The second phase of the FCA’s three-stage thematic review of RDR is now upon us. But before the focus shifts it is worth looking back to the first stage of its post-implementation review (TR13/5) which examined disclosure and how firms charge for advice.
As the regulator seeks to establish where the industry stands after implementation, the review was intended to determine whether or not the end consumer was aware of all the changes to fee-charging.
Underpinned by research by NMG to assess consumer awareness and perception of the changes, it was also intended to serve as a reminder of the rules that firms should be adhering to.
For example, was the customer aware of the difference between independent and restricted advice, how the advice processes will work and, importantly, at what point will they start running up a bill and how they will settle it?
The FCA is rightly concerned that, given its competition remit, consumers should be able to compare the services available and the likely costs before deciding with whom, if anybody, they want to deal.
To ensure you are complying with the new regime and delivering your service to your target consumers, my advice is to implement one of NMG’s suggestions and provide prospective clients with a series of quick questions to ascertain that they understand these points before agreeing to work with you.
Rather like a pilot going through a pre-flight checklist before take-off, I would recommend either asking the client to confirm their understanding or, if a more formal approach is preferred, providing a checklist for the client to complete and sign, assuming they want to proceed, as part of your pre-engagement activity.
Running through the following questions would help to show that a client has fully understood the charging structure and processes involved:
• If English is not your first language, do you require a translation?
• Does your adviser provide advice based on all the products in the market, or is the adviser restricted in any way?
• What type of investment service/mortgage service/pensions service does the adviser offer?
• What do you understand to be the process your adviser will follow with you to reach a personalised solution?
• How will the adviser determine what is right for you?
• When do you understand costs will start to be incurred?
• What is the approximate cost of setting up a new investment?
• What kind of ongoing or monitoring services does the adviser offer and do you need them?
• How is the ongoing service paid for?
• What is the approximate cost for the ongoing service?
• What value do you believe the adviser can provide, or could you do this yourself and at what cost if you wanted to?
In tandem with those questions, another very useful piece of guidance is provided by the FCA’s 007 fact sheet which I would recommend advisers consider using as a means of self-assessment and a prompt to review their current practice for disclosure.
In addition to using fact sheet 007 as a self-assessment mechanism for your business model and disclosures, it is also well worth downloading TR13/5 (a concise 11 pages) and familiarising yourself with the examples of good and bad practice that it features.
