Indeed, while the majority of adviser payments come from ongoing services, Bruns says the FCA’s information request may be less about how firms charge, and more about being able to evidence that clients derive value from the service for which they have signed up.
“In our view, what the FCA is looking for is that firms keep their ongoing service model under review with the four consumer duty outcomes in mind.
“This includes documenting why the service fits with the firm’s target market, that customers understand the level of service they should be receiving, transparency of costs, and the ease with which a client could switch or cancel an ongoing service.
“It should go beyond simply justifying existing service levels and price points that were in place prior to the consumer duty taking effect.”
What next after the FCA’s information request?
The FCA says it is collecting information from firms about delivery of their ongoing advice services to assess what, if any, further regulatory work it may undertake in this area.
Paul Caine, associate director at Thistle Initiatives, a compliance consultancy, says the focus of any further work is likely to involve a detailed scrutiny of how firms assess the value of their ongoing services in light of the consumer duty.
“Enhanced supervision might also include regular reporting requirements, targeted inspections, and thematic reviews,” Caine adds.
“If there is continued evidence that firms are not evidencing fair value, the FCA might identify the need for new rules or amendments to existing ones to ensure that ongoing services are delivered in a manner that aligns with the consumer duty.
“This could involve setting clearer standards for the assessment of service value, transparency in costs and charges, and the execution of suitability reviews.”
Meanwhile, Lawrence at Bovill says he believes any further regulatory work would involve a more detailed look into the following areas:
- Do all clients need an ongoing service?
- Are clients in the right type of service for their needs and objectives?
- Are ongoing services fairly priced?
- Are ongoing services delivered as promised?
- Are ongoing services delivered well?
Bradley Northrop, director at Alpha Financial Markets Consulting, says increased scrutiny around adviser charging and assessment of value will require firms to revisit their service proposition, evaluate their cost to serve and consider the total cost of ownership for recommendations being made to clients.
“With pressure on fees and creating efficiencies, this may push more firms into taking on greater ownership of the value chain in-house and moving into more restricted models to help streamline the advice process,” says Northrop.
“We are starting to see larger firms explore alternative pricing mechanisms for certain propositions and target markets, including the delivery of subscription-based pricing models aligned to the delivery of ‘always-on’, digital-first engagement with access to an adviser at the key moments that matter.
“There could be value for certain segments in delivering this always-on engagement and charging for episodic advice at the key moments that matter, particularly through an accumulation journey.”
