The latest thematic review into adviser charging has left the Financial Conduct Authority (FCA) extremely peeved.
The findings found an astonishing 73% of firms were not being clear about the cost of advice.
To add insult to injury the financial watchdog said it could take enforcement action against two firms – one wealth and one advisory –for ‘egregious’ failings.
It said while price failings were widespread across the industry, wealth managers and private banks 'performed poorer than other firms in nearly all aspects'.
After all the manpower and effort involved to create the retail distribution review, which was implemented a little more than a year ago, the results are a real kick in the teeth for the FCA, led by Martin Wheatley (pictured).
FCA director of supervision Clive Adamson was not impressed.
'I am disappointed with the results of our latest review looking at whether advisers are clear with their customers on costs and services provided,' he said in a statement.
Malcolm Kerr (pictured below), senior adviser in financial services at EY, underlined temperatures are likely to be rising at the FCA’s headquarters.
‘The latest review is disappointing and shows that the market is still in a state of transition from the old world of commission on investment products, to the new world where fees and services are clear cut,' he said.
‘It's remarkable that, more than one year on from the introduction of RDR, very few firms' websites have a clear statement of what they offer and how much they charge. The rules around describing fees and services are clear and whilst there is good practice out there, it needs to be across the board as it looks like the FCA is starting to lose patience.’
Kerr believes communication could be one of the major problems as wealth and advice firms struggle to make the transition to fee-based systems.
‘Part of the confusion may be caused by fee models which look just like commission, but poor communications and the lack of clarity on ongoing services suggest a deeper-rooted issue,' he said
‘Firms have still not fully understood the transition they have to make from 'selling products' to 'providing an advice service'.
Firms now have a few months to get their shops in order before the FCA unveils the results of its third and final review into pricing in the third quarter.
Ian Stott, client services director at The Consulting Consortium, warns the FCA’s more aggressive stance could expose cultural issues at firms.
‘The regulator expects firms to be 100% transparent in their service, costs and service delivery, Stott said.
‘If firms are still not getting this simple element correct, the regulator may see this as an indicator of more embedded cultural issues, prompting a more intrusive review into firms’ practices.’
Stott expects the FCA to renew its focus on how individuals with significant functions at firms run their divisions to ensure customers are treated fairly.
‘To avoid the increased regulatory scrutiny that this could bring, firms will have to tighten process, improve oversight and focus on training their front line to deliver a more transparent service.’
Kerr believes wealth and advisory firms across the board should prepare for a more interventionist stance from the FCA.
‘The FCA's intention to move to immediate enforcement on two firms highlights its more interventionist stance and willingness to take action early when it spots failings,’ Kerr said.
‘Firms of all stripes should be taking a cue from the pattern of enforcement and seek to ensure that they avoid similar failings in their own businesses."