The Consumer Duty requires adviser firms to think about how their charges represent fair value for different groups of consumers and they must adapt where necessary, the Financial Conduct Authority (FCA) has warned.
FCA director of consumer investments Therese Chambers highlighted the incoming requirements that advice firms need to ensure their services offer good outcomes in terms of price and value.
“For financial advisers, this means the adviser charges that consumers pay must be reasonable compared to the overall benefits they receive,” Chambers told the Personal Finance Society’s Festival of Financial Planning.
“FCA research in 2020 found consumers who get financial advice do not always have a clear understanding of what financial advice costs. Many adviser firms also appear to face little competitive pressure to innovate and offer new, or more affordable, services.”
Clustering of charges
Chambers added that in a well-functioning market, the regulator would normally expect there to be a “broad distribution” of charges, reflecting factors like different service levels, underlying costs to advice firms, and incentives for firms to compete on price.
But she added FCA analysis found “significant clustering” of adviser charges.
“Our rules allow firms flexibility in how they set their charges, so it is important firms think carefully about whether their charging model is fair value for different groups of consumers,” Chambers added.
“This could mean a firm identifies specific groups of consumers for whom their advisory charging model is unlikely to offer fair value. And where they need to make adaptations to ensure that it does.”
Chambers also made clear that consumers need to get the support they need when they need it.
“We expect firms to provide support that meets consumer’s needs and expectations,” she said.
“So where financial advisers have committed to providing ongoing services to their consumers, these should be delivered and delivered well. This is especially relevant given how much of financial advisers’ fee revenue comes from ongoing charges.
“Equally, where things go wrong and customers complain, we expect to see good levels of support from firms in resolving those complaints with consumer outcomes front of mind.”