The Financial Conduct Authority has published the findings from its review into the suitability of pensions and investment advice, but while the results are reassuring, experts say more needs to be done to make advice less convoluted.
The review was initiated in April last year and assessed advice given by 656 firms against the FCA’s suitability and disclosure rules.
It found that the sector provides suitable advice in 93.1 per cent of cases, while in 4.3 per cent of cases, the advice is unsuitable, and in 2.5 per cent of cases, the advice is unclear. One of the reasons why some advice was deemed inadequate was that suitability reports were too long or complex.
Furthermore, some firms “were recommending that customers give up valuable guarantees without good reason or where the additional costs appeared to outweigh the benefits of the recommended solution”, states the review. There were also issues regarding risk profiling.
The disclosure figures were not as positive. In 52.9 per cent of cases the FCA’s disclosure requirements have been complied with, with the regulator stating that “there is further work required in this area”.
The main issues involved firms using hourly charging rates that failed to provide an indication of the number of hours for the provisions of each service, and firms disclosing charging structures with wide ranges.
Advice can create confusion
Stephen Scholefield, partner at law firm Pinsent Masons, said one of the most interesting aspects of the review is the focus on some advice often being lengthy and more complicated than it needs to be.
He said there can be a “temptation when you’re giving advice to cover your back and make sure you dot all your i's and cross all your t's… but sometimes, when you think you’re doing a good job, all you’re doing is creating confusion”.
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Making advice less complex “is one of the key aspects in helping to get more people engaged in thinking about their future and taking advice along the way”, Scholefield added.
Steven Cameron, pensions director at provider Aegon, said that “we need to learn from where we can further improve, and it’s appropriate that the FCA is focusing on how to provide more guidance on risk profiling and the considerations advisers should take into account when advising on replacement business”.
Length and complexity of advice was also a concern for Cameron. While the regulator will always want to make sure that customers receive full information, he said, “it’s always quite difficult to strike the right balance between giving enough without just swamping the individual, and so I think getting disclosure absolutely right is a challenge for all of us – providers, advisers and indeed the regulator”.
Charlie Musson, spokesperson at platform provider AJ Bell, said the current disclosure regime was no longer fit for purpose.
“Focusing on suitability is only one part of the problem. There needs to be a wider overhaul of all the information provided to people at the point of sale to ensure it is understandable and achieves its purpose of helping people make informed decisions,” he said.
