Financial advisers fail on fee disclosure - FT.com
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April 8, 2014 2:00 am
Financial advisers fail on fee disclosure
By Emma Dunkley
The UK’s financial watchdog has found “widespread” failings among advisers on disclosing charges to clients, citing wealth managers and
private banks as worse than other groups.
In its latest review of the advisory industry, the Financial Conduct Authority said it would probably refer one adviser and one wealth
manager to its enforcement division for further action, after discovering “egregious failings” in meeting transparency rules.
The review is the second of three by the watchdog assessing how groups implement rules on disclosing fees and services, to make the
advice market more transparent for consumers. The first was last July, the third is due later this year.
The review found 73 per cent of advisory companies did not provide the required information on the cost of gaining financial advice, which
could “mislead” investors.
It showed 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.
“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,
FCA director of supervision.
Wealth managers and private banks were highlighted as “poorer” than other firms in disclosing charges and making clear the nature of
their services.
David McCann, director of equity research at Numis Securities, believes the complexity of wealth managers’ charging structures veils the
full extent of costs investors end up paying.
“I can fully understand why the FCA has come up with its conclusion,” he said. “It’s the complexity of structures, the tiering; the charges
seem designed to confuse and hide the full reality. For the end investor, it’s really hard to compare like for like.”
He said that often certain fees were omitted from the headline charge, such as value added tax, platform costs, foreign exchange charges
for converting international shares, and transaction costs on the underlying investments.
Research by Numis shows £120,000 invested with St James’s Place Advisory over one year could incur a charge of £8,970, for example,
whereas investing with Coutts over this time could cost £4,520. Analysts note St James’s Place charges an initial fee, which means the cost
is lower in later years.
Although other companies might not have this upfront charge, they might have other “hidden” fees bolted on.
RELATED TOPICS Financial Conduct Authority UK
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