FCA finds 40% of advice provides 'unacceptable' disclosure

Added 18th May 2017

The Financial Conduct Authority (FCA) has found “unacceptable” levels of disclosure in over 40% of the financial advisory sector as it releases the results of its Assessing Suitability Review.

FCA finds 40% of advice provides 'unacceptable' disclosure

The review was initiated in April 2016 to assess the suitability of advice, considered to be one of the seven priorities outlined in the regulator’s 2016/17 business plan.

The purpose of the review is to “assess a statistically robust sample of advice files that allows us to draw conclusions on the suitability of advice and quality of disclosure in the sector as a whole”.

Assessing 1,142 individual pieces of advice given by 656 firms against the suitability and disclosure rules in the Conduct of Business sourcebook, the FCA found acceptable disclosure – in line with its disclosure rules -  in just over half of cases.

In 41.7% of cases, unacceptable levels of disclosure – or in breach of its rulebook - were found and in 5.4% of cases, the sector provided a lack of certainty.

The picture improved in terms of suitability: in 93.1% of cases, the sector provided suitable advice; unsuitable advice in just 4.3% of cases; and even fewer – 2.5% of cases – provided unclear advice.

The FCA found the main area demonstrating unacceptable disclosure was in the initial disclosure, namely firms disclosing an hourly charging structure but not providing an approximation of how long each service was likely to take, and firms showing wide-ranging charging structures.

The FCA paper said: “These are persistent issues, previously highlighted during the three stage RDR thematic review completed in 2014.

“We are disappointed that this continues to be an issue.”

It stressed the role of proper disclosure in helping customers make informed decisions about their financial affairs.

“However, whilst we are disappointed in the results regarding initial disclosure, our analysis suggests that there were only six files of the 1,142 we reviewed where the firm provided no information on the costs of the service to the customer.”

The FCA urged firms to consider the findings and identify the areas on which they could improve.

A communication programme is planned throughout this year and into next year and with further details to be revealed in terms of findings.

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