In February the Financial Conduct Authority sent a questionnaire to advice firms in the UK, requesting information about their delivery of ongoing services.
While currently only 20 of the largest firms are affected, the spotlight on the value firms provide for ongoing fees is likely to have implications for the profession as a whole.
The survey asked for three data points covering each year back to 2017:
- The number of clients due a suitability review as part of the financial advice ongoing service.
- The number of clients who received a suitability review as part of the financial advice ongoing service.
- The number of clients who paid for ongoing advice but whose fee was refunded as the suitability review did not happen.
The regulator is also interested in whether firms have made any changes in response to the introduction of consumer duty.
Before the implementation of consumer duty, the FCA had already highlighted ongoing service as a potential area for concern.
In a letter to advisers in December 2022, it stated that post-implementation it would monitor firms to assess “whether consumers are paying for ongoing services that do not meet their needs, is not delivered as per the terms of the agreement or is too costly when assessed against the content and quality”.
The regulator is now carrying out this work, starting with the biggest firms, which will have more clients and potentially a higher risk of individuals not receiving value for ongoing fees.
However, the exercise could be extended far more widely, especially if the FCA finds cause for concern from the initial responses.
So far public reaction from the 20 firms involved has been limited.
St James’s Place announced in its annual results that it had set aside £426mn “for potential client refunds linked to the historic evidencing and delivery of ongoing servicing".
Similarly, Quilter warned in its recent annual results that it may need to pay remedial costs, although said it was too early to confirm, adding it was “commencing a review of historical data and practices across our network to determine what, if any, further action may be required”.
Conversely, in Aviva’s annual results presentation, Amanda Blanc, the group chief executive, told analysts evidencing ongoing advice services was not an issue for the company, saying: “We are very satisfied that Succession Wealth has robust processes in place to document and monitor where annual planning meetings have taken place.”
Most advisers will be delivering good value for ongoing fees, but evidencing that may be an issue.
There is no doubt that the consumer duty requirements, and in particular the need to document compliance on an ongoing basis, have increased the burden on firms.
Without the correct systems in place, it will be difficult to satisfy the regulator’s current data request without increasing admin resource or cost.
However, it is also crucial to have the right processes in place to make sure information is recorded properly within those systems.
Segmenting clients
As a start, firms will need to have segmented clients in sufficient detail to ensure the level and type of service offered is appropriate.
