Nic Cicutti: FCA won’t back down on ongoing charges

News that the Financial Conduct Authority has written to 20 of the UK’s largest advice firms, asking for details of the services they deliver to clients who pay ongoing charges, reminds me of the only time Money Marketing has been forced to issue a formal apology for my writing.

Yes, I know that many advisers feel MM should be requesting its readers’ forgiveness at the start of all my columns.

But this apology was fairly unusual: it was about trail commission. And it involved MM saying sorry to everyone’s favourite financial advice boss, Andrew Fisher, back in the day when he headed John Scott & Partners, which later took over and rebadged itself under the Towry Law brand.

My guess is that most firms contacted by the FCA won’t have good answers to its questions

The saintly Fisher, older readers may recall, made a name for himself by attacking IFAs for their greedy obsession with commission — compared to his firm, which remunerated its advisers through fees only.

It subsequently turned out that a large chunk of Towry Law’s annual turnover consisted of so-called recurring income, as distinct from fee-earning income; trail commission from legacy business, in other words.

It also transpired, as The Times reported, that Towry Law was remunerating its advisers for persuading clients to place their money into its independent investment management service.

Back then, trail came directly from providers. Today, ‘service charges’ are levied by advisers on their clients’ portfolios.

The irony is that the issue around ongoing service charges, and what advice firms do to earn them, hasn’t gone away

My beef with Fisher was over the fact that — as now — too many advisers were receiving annual sums of money without doing anything to earn them.

My jibes about Fisher and trail commission clearly rankled with him. He set his lawyers on MM and, for the first and only time, in my case, an apology was published. I was duly told.

Supreme irony

The irony is that the issue around ongoing service charges, and what advice firms do to earn them, hasn’t gone away.

Almost 15 years later, the FCA is asking the industry for data on the number of their clients who are due an annual review of the ongoing suitability of the advice they have been given, how many have received that review, and how many have paid for ongoing advice but whose fee has been refunded when the suitability review did not happen.

My guess is that most firms contacted by the regulator won’t have good answers to any of those questions.

One guess would be that, having sent out a letter setting out its concern, the regulator found that nothing had changed

Even stranger is the fact the FCA is using its new Consumer Duty as the tool to extract this information. Six months ago I wrote an uncomplimentary piece about the Consumer Duty, arguing that I doubted it would “fundamentally change the regulatory landscape in financial services”.

Ordinarily, it would be hard to reconcile my comments with this initiative by the FCA over ongoing service charges. Back then, the regulator spoke of the Consumer Duty as reflecting its underlying expectation that, unlike Treating Customers Fairly (TCF), firms would effectively be self-policing their activities.

The onus was supposedly on firms to monitor themselves instead of being asked by the FCA to provide additional data as per old, outdated TCF requirements. The idea was to have ‘Consumer Duty champions’ at board level to ensure the organisation was delivering good outcomes.

My beef with Fisher was over the fact that — as now — too many advisers were receiving annual sums of money without doing anything to earn them

To all intents and purposes, it looks as if the regulator is using the Consumer Duty in exactly the same way as TCF to assess what, if any, additional regulatory work it may need to undertake in this area. Based on firms’ responses, the FCA anticipates “providing a further update”.

Why the change? One guess would be that, having sent out a letter in December 2022 setting out its concern that advisers were not adequately considering the relevance, nature and costs of these ongoing services for all their clients, the regulator found that nothing had changed.

If so, advisers should expect continued scrutiny by the FCA regardless of the name of the regime under which they come.

Meet the new boss: same as the old boss.

Nic Cicutti can be contacted at: nic@inspiredmoney.co.uk

This article featured in the April 2024 edition of MM. 

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