A regulator has found “widespread” failings among financial advisers on disclosing charges to clients, citing wealth managers and private banks as worse than other companies.
The latest review by the Financial Conduct Authority showed 73 per cent of advisory companies were unclear about their fees, which could “mislead” investors over the cost of seeking financial advice.
The watchdog said 58 per cent of companies failed to give clients upfront information on how much their advice could cost, while the same number failed to give extra information on fees, such as highlighting that ongoing charges might fluctuate.
Nearly one-third of firms offering “restricted” advice – recommending certain investments and services, as opposed to the whole market – were not clear that they were restricted.
The review also found that more than one-third of firms failed to provide a clear explanation of the service they offered in return for an ongoing fee.
The FCA said that while the failings were “widespread”, wealth managers and private banks in particular were worse than other groups in all aspects.
It is likely that two companies, an adviser and a wealth manager, with “egregious failings” will be referred to the FCA’s enforcement and financial crime division, the regulator said.
The FCA’s scrutiny follows a major regulatory shift under the Retail Distribution Review, which came into force in 2013. This was designed to make charges clearer to help consumers and stamp out advisers taking commission from fund groups for selling their funds.
“While we have seen a lot of positive progress and willingness by advisers to adapt to the new environment, I am disappointed with the results of our latest review looking at whether advisers are clear with their customers on costs and services provided,” said Clive Adamson, director of supervision at the FCA.
Mr Adamson added that the watchdog’s findings were a “wake-up call” and expects the industry to respond.
The review is the second part of a three-pronged assessment of how advisory firms have implemented elements of RDR. The third part of the watchdog’s review will be between July and September this year.