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FCA Warns Advice Firms On Potential Overcharging Concerns 


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City regulator warns advisory firms about possible overcharging, signaling a potential crackdown on customer fees. 

Image Source: Bloomberg
City regulator warns advisory firms about possible overcharging, signaling a potential crackdown on customer fees. 
Image Source: Bloomberg 

The Financial Conduct Authority (FCA) is cautioning advisory firms about potential excessive charges, expressing concerns that certain clients may be paying more than necessary. In a recent statement, the FCA revealed its communication with approximately 20 major advisory firms, seeking specifics on the fees associated with ongoing services provided to clients post-advice. 

This action aligns with the Consumer Duty regulations introduced by the watchdog last year, mandating companies to uphold elevated standards of customer protection. Under these regulations, firms are obligated to act in good faith, avoid foreseeable harm, and facilitate customers in achieving their financial goals. 

“The data gathering . . . forms part of [our] work to raise standards so people can invest with confidence,” emphasized the FCA. “Central to that strategy is ensuring people can access advice if they want it and have trust in the services on offer.” 

The FCA has previously cautioned the retail investment sector about potential discrepancies in the value for money received by consumers in ongoing services provided by financial advisers. Therese Chambers, Director of Consumer Investments at the FCA, highlighted concerns in December 2022, noting that “We are concerned firms are not adequately considering the relevance, nature and costs of these services for all their clients.” 

During a subsequent webinar a year later, the regulator expressed worries that some consumers might be paying for services, like an annual review, without actually receiving them. The FCA’s survey sought information on firms’ evaluations of ongoing services post the implementation of the Consumer Duty, including any resulting modifications. 

The inquiry also delved into the number of clients identified for a suitability review within the service, how many underwent such a review, and the instances where clients were refunded advice fees due to the absence of a suitability review. 

Emphasizing a broad market understanding, the FCA clarified that the selection of surveyed companies wasn’t based on specific concerns but aimed at obtaining a comprehensive view of market practices. Post-evaluating the responses, the FCA will provide updates to the concerned companies. 

Under the Consumer Duty, the FCA applied pressure on wealth manager St James’s Place to revamp its fee structure, addressing criticisms of opaque and expensive charges. This led to the company announcing its most significant fee overhaul, introducing a new charging structure for the majority of new investment bonds and pensions. 

In addition to these actions, the FCA issued warnings to investment and pension platforms, signalling intervention if interest payments on customers’ cash balances are unfairly withheld or if excessive fees for managing them are charged. A recent FCA probe highlighted a substantial increase in interest earnings by these companies from customers’ cash balances over the past 18 to 24 months, coinciding with the Bank of England’s base interest rate adjustments. 

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