Senior executives have attributed damning Financial Conduct Authority (FCA) findings that wealth managers are not fully disclosing their charges or restricted status to a lack of guidance from the regulator and trade bodies.
The FCA found 73% of firms were not fully disclosing advice costs, while 31% of restricted businesses were unclear about the nature of their restriction.
Guy Stephens, a director at Rowan Dartington, argued significant regulation such as the retail distribution review was bound to lead to misunderstandings and it could be seen by some as naïve of the regulator not to have recognised this.
He added: 'The discretionary fund management space was very confused, and pulled its information from bodies and lobby groups that all held different views on what needed to be done.
'That's not to blame the FCA, but I would have hoped they would have worked with the industry.'
He added: 'If they were more prescriptive to start with, we wouldn't be in this place. If you're not prescriptive, you can't be too harsh when people don't get it right, and 73% means a lot of people haven't got it right.'The FCA revealed that a wealth firm and advisory business have been referred to its enforcement and financial crime division for ‘egregious’ failings. It said wealth managers and private banks performed poorly in ‘nearly all aspects’ – a disappointing conclusion, given the FCA’s ongoing Suitability Review.
Michael Lally of Thesis Asset Management (pictured) called on the Investment Management Association and Wealth Management Association (WMA) to do more.
‘The trade bodies need to liaise: getting guidance would really be useful,’ he said. ‘What the FCA is trying to do is not get a situation where people are forced to do things, but one where there is a change in mentality or culture.’
Lally believes trade bodies should provide the industry with clarification about how to interpret the FCA’s warnings.
The WMA confirmed it is in talks with the FCA about the findings. A spokeswoman stressed its members ‘send their customers written confirmation of all costs, properly itemised’.
She added the WMA is ‘anxious to understand where the regulator believes some of our firms could be improving, and will be discussing this with them as a matter of urgency’.
Pamela Reid, executive director and head of Quilter Cheviot’s Bristol office, warned the findings may not necessarily tell the whole story.
‘Disclosing your charges is quite straightforward, and I don’t think there needs anything more to be said than that. Allied to the importance of the disclosure of adviser charging is looking at the actual cost of investment,’ she added.
Jonathan Fry, a director at his eponymous wealth management firm, responded to the findings by asking: '‘The question is: what is it specifically that the FCA is saying that is not being declared by the firms?’
He added: ‘I think that the FCA is very right to highlight those issues especially the one of restricted advice status and what they charge, but it’s over simplistic to think that all clients are as rational as the regulator would wish them to be, or as well informed.
'The explanation and discussion of fees is a potentially very time consuming and open-ended, wide ranging subject. It is far from straight forward to think that at an initial meeting a client can really grasp the implications of different firms' fee models.'