The Financial Conduct Authority has warned advisory firms to review the ongoing services delivered to clients, to ensure they meet regulatory requirements.
This warning comes after a review of practices at some of the largest financial advisory firms, which found the vast majority where delivering ‘suitable’ ongoing reviews.
The FCA sought data from 22 of the largest advice firms, after concerns that ongoing advice services were not always being delivered despite being paid for by clients at the outset. However this initial review indicated that these larger firms were delivering suitable reviews and ongoing services in around 83 per cent of cases.
In a further 15 per cent of cases the FCA were told that clients either declined or did not respond to the firm’s offer of a review. There were fewer than 2 per cent of cases where firms reported they had made no effort to deliver the suitability review to clients.
The FCA is asking all advice firms to review its findings, and to consider whether they have met their regulatory requirements and contractual obligations regarding ongoing services. This can include ongoing advice as well as a range of related services,such as arranging transactions or managing a relationship between a retail client and discretionary investment manager.
The FCA warns firms that if they are not meeting these requirements advisers should take appropriate steps to remedy the situation.
The rules on ongoing services were introduced more than a decade ago, during which time consumer needs and expectations, technology, and market practices have continued to change.
Going forward, the FCA will review the regulatory approach for these services.
Isio head of regulatory risk and rectification Ben Goodwin says: “The FCA’s review findings highlight the importance of ensuring clients receive the ongoing advice they are paying for.
“While the results suggest that many firms are delivering or offering annual reviews as expected, the FCA has made it clear that there are gaps, and it is hard to draw conclusions from this report on the extent of non-delivery of ongoing advice across the market.
“Some firms were unable to provide complete data, although the report does not state to what extent. The report states that 83% of reviews were delivered. However, it notes that these figures are based on the data provided by firms, and it is unclear whether the reported delivery rates were validated, for example through client file sampling. Also, the review sample was not representative of the whole market.”
Goodwin adds: “The FCA has also highlighted good and poor practices, reinforcing the need for firms to take a closer look at their own processes. Notably, some of the largest advice firms have publicly acknowledged ongoing reviews into their services, showing that this is not an isolated issue. Firms should take this as a warning to assess their own delivery of ongoing advice and determine whether past business needs to be reviewed.
“Beyond looking backwards, firms must also ensure their current processes align with Consumer Duty requirements. This means having robust systems in place to track and evidence the delivery of ongoing advice and proactively identifying and addressing risks. With further regulatory scrutiny expected, firms should take the opportunity to strengthen their oversight now, ensuring they are not only meeting compliance expectations but also delivering good outcomes for clients.”
FCA interim executive director of markets Simon Walls says: “Ongoing financial advice and support can be a fantastic service and can be important in helping people make the most of their money. Relationships between advisers and customers can last many years and can take different forms.
“In the vast majority of the cases we looked at, firms delivered ongoing advice for their customers. But, in a small number of cases, they haven’t attempted to provide the services they offered and customers are paying for. In those instances, they will need to put that right.
“The FCA will also review the rules on ongoing advice to make sure they remain fit for the future and help as many people as possible to get good support in managing their financial lives.”
The FCA added it wanted to ensure the financial advice market develops to enable consumers to access the support they need. It has set out significant proposals to achieve this as part of the Advice Guidance Boundary Review.
