More than £5bn of adviser payments were made for ongoing services in 2022, a sum significantly outnumbering payments for initial, one-off and ad-hoc services, according to Financial Conduct Authority data.
So it figures that the regulator’s information request for around 20 of the largest advice firms about their delivery of ongoing advice services is something that could have an impact on the industry as a whole.
Indeed, the information request should prompt many firms to rethink how they charge clients, says Vanessa Johnson, head of compliance strategy at Threesixty, a compliance specialist.
“Those firms that have been charging clients for ongoing services, and who have not been providing them, clearly will need to rethink their positions.
“This may affect revenue streams for those firms who have been receiving income for services that have not been provided. The cost of now providing those services, or turning off that income stream, will have an impact on their financial position.”
While the FCA’s information request comes less than seven months after the consumer duty came into force, Michael Lawrence, principal consultant at Bovill, a regulatory consultancy, says the FCA’s assessment of ongoing services has been “a long time coming”.
Citing the regulator’s evaluation of the impact of the Retail Distribution Review and the Financial Advice Market Review in 2020, and its portfolio strategy letter for financial advisers and intermediaries in 2022, Lawrence says: “It’s not as if firms haven't been put on notice about this.”
Annual reviews
Concerns were also flagged by the FCA in December during its consumer duty webinar that it appeared some consumers may be paying for a service, such as an annual review, but were not receiving it.
One of the questions that the regulator has put to firms in its information request is about the number of clients who paid for ongoing advice, but whose fee was refunded as the suitability review did not happen.
The concept of refunding an advice fee sounds a reasonable concept, but the reality is perhaps more complicated, says SimplyBiz compliance director, Paul Bruns.
“Often some form of service will have been provided to the client, even if the fully comprehensive annual review has not been delivered.”
What is important, adds Bruns, is that firms are able to pick up on these issues through their consumer duty ongoing monitoring, by:
- identifying those clients that are not deriving full value from the service;
- why are they not engaging;
- what adaptations could be made;
- how can the firm better explain to the client the importance of keeping ongoing suitability under review; and
- confirming whether the firm has a clear disengagement process, if required.
What else counts as ‘ongoing services’?
As well as annual reviews, Johnson at Threesixty cites events, ongoing communications such as newsletters, and opportunities to meet investment managers where a discretionary management service is recommended as other examples of ongoing services.
But the service should also be of genuine interest to the client, she adds. “For example, a client may be paying for a quarterly newsletter, which they never read. Client uptake of the services promised, and for which the client is paying a fee, needs to be monitored.”
Year-round availability of, and access to, an adviser is also often considered an ongoing service. But Johnson warns of a situation where a client may be unaware that they are paying for access to an adviser, and may not even need that access.
