I explained the background in our Wealth Management Annual Review and expressed the hope that the FCA would choose the least worst option: by doing as it has and issuing a 'good and bad practice' report, leaving firms to ensure good outcomes for advised clients as part of their ongoing service delivery and Consumer Duty compliance. I'd like to think the FCA read about my concerns that "Conflating the ongoing fees for ongoing services rule (COBS 6) with the periodic assessment of suitability rule (COBS 9) would create too simplistic an approach. Mixing concepts like fair value (post Consumer Duty) with the requirement for compliant MiFID II suitability reviews risks treating all propositions the same and forcing firms, in effect, to build their business models solely with the rules in mind." Reassuringly, an FCA representative has since explained "‘It was not focused on the quality of the review, it was focused on the existence of the review, … There is going to be work to define it [the annual review]. When we say we are going to look at the rules, that is all part of it, ... We want to make sure that there is sufficient clarity over what an ongoing advice service can be."
The Findings & Expectations
Even on reflection, this looks like a reasonable outcome. It was delayed by a couple of months and (it seems) someone talked some sense into the FCA decision makers in the meantime. There is enough talk of industry-wide redress schemes in relation to motor commissions and the FCA is keen to demonstrate its pro-growth credentials, concluding its feedback statement by saying " We want to help the market develop for the benefit of consumers and ensure a trusted and thriving financial advice sector."
The FCA reported "reviews were delivered in around 83% of cases. In a further 15% of cases, clients either declined or did not respond to the firm’s offer of a review. In fewer than 2% of cases the firm had not attempted to conduct a review and this will need to be put right. Therefore, we do not currently view this issue to be systemic but will continue to monitor the situation". The Regulator has said where a firm has been "ready, willing and able to provide suitability reviews, but a client has consciously declined the service in any given year" then redress is less likely to be due. The reference to just 2% of cases where the FCA considers redress might be due feels like a 'light regulatory touch'. Even the most robust firms have generally recognised they have not given full suitability review advice in each and every year to more than 2% of their clients.
In terms of next steps, the FCA says "Firms should consider our findings and whether they can evidence that they have delivered all the services they were required to deliver, as set out in their contracts or as required by our rules. Consideration should include whether it would be appropriate for them to proactively contact customers to assess if any harm was caused as a result of any identified problems or failings." The FCA believes firms carrying out proactive reviews should look back to 2018 – but we will have to see if the FOS holds the line there. Firms' experience of FOS's approach to time-barring won't inspire any confidence. The FCA has said it will monitor complaint numbers and also carry out work later in 2025 to assess actions firms have taken in light of its findings.
Citywire spoke to Simon Walls, Interim Executive Director of Markets at the FCA [FCA says it will watch out for ongoing advice ‘laggards’] who reportedly said: "‘We won’t be limited to the 22 [original firms surveyed],’ he revealed. ‘We will go back with feedback to the 22 now – they are sufficiently large that we generally have relationships with them and we understand their plans and actions,… We will then make sure looking across the industry that there are not laggards.’ Rather than make an attempt to steer the FOS, Walls is reported to have said "‘We will be guided by the data, looking at the FOS and the number of complaints, which of course we can do across all firms and we will determine a methodology based off what we see". Whilst firms don't want industry-wide redress schemes under s404 FSMA, the PPI saga also taught us that leaving the solution to be complaints-driven doesn't bring resolution as quickly and benefits only the claims management companies. If the complaints volumes climb, firms may prefer to get ahead of the problem.
The FCA reminded firms that "under the Consumer Duty and DISP, firms must take appropriate action if they identify, through complaints or otherwise, that retail customers have suffered foreseeable harm as a result of acts or omissions by the firm." The FCA acknowledges that it may be appropriate to provide proportional redress, "only in respect of part of the charges levied taking account of relevant circumstances and obligations….". Firms could probably devise a sustainable approach that assesses whether there has been any potential harm before there is any need to contact clients. With the combined threats of FCA scrutiny and complaints hanging over them, firms may prefer to take a pro-active approach. Whatever approach firms take, even if with the 'blessing' of the FCA, the key test will be when defending the inevitable complaints, particularly brought by CMCs and claimant lawyers like AMK.
Unusually, the FCA included a 'next steps for consumers' section in its feedback statement, saying: if a consumer is concerned they may not have received the services owed to them, they can raise any concerns with the firm. The FCA's reminder that "Consumers do not need to use a claims management company. It is free and simple to complain to a firm" won't be enough. The Ombudsman is only bound to follow a consumer redress scheme or FCA Requirement imposed on a firm. It would be a brave firm that turned their review into an FCA-approved Requirement. So unless FOS accepts the FCA's approach as the 'regulatory standard' for the purposes of its decision-making, the complainants and their representatives will keep going until they get full refunds for all years where the firm cannot evidence a review. In this regard, I have called for the FCA to remove the reference to 'bad faith' from the Consumer Duty guidance at paragraph 5.17 of FG22/5 which states: "Where the ombudsman service has made a decision relevant to the case(s) at hand, we will consider a firm to be acting in bad faith if it delays paying redress where this is due but instead waits for the ombudsman service to make a further decision". If firms no longer need a Consumer Duty champion, perhaps the FCA would see its way to allowing them to defend complaints without being deemed to act in bad faith.
What Firms Should Do
All firms should now consider what they must do and how they can evidence a reasonable response if asked by the FCA later this year. This should include considering contract terms and underlying MI / data. Additionally, firms need to review their systems and controls, policies and procedures going forward. Post-Consumer Duty, there will be ever increasing expectations on firms.
Firms must check their data; both what it says about their service delivery and whether it's reliable. Many of the 22 firms in the sample struggled with verification and that exercise alone can prove time-consuming and costly.
Not only must firms check their client agreements and Ts&Cs but they must check their alignment with their proposition and both COBS 6.1A adviser charging rules and COBS 9(A) periodic suitability assessment requirements. If not already as part of their Consumer Duty project, firms should review their advice process and customer journey, with particular focus on service delivery and evidence. This should include a review of adviser charge policies and procedures, including suspension of fees, turning off fees for disengaged clients and eventual refunds for failures to deliver any service at all. Note that platforms where told in the Dear CEO letter of September 2023 [Our platforms supervision strategy: portfolio letter], as one of their 'fraud controls', that the FCA expects "firms who facilitate adviser charging to rigorously monitor the use of this functionality and assess whether advisers are using it appropriately. y. In instances where adviser overcharging or misuse of adviser charging facilities are identified, we expect platforms to intervene and protect consumer interests."
Firms should take the opportunity to segment their client base and use any period of grace implicit in the FCA's 'lighter touch' reaction to re-shuffle their decks to ensure to find clients the right home, whether in another proposition with the firm or elsewhere. The FCA was at pains to ensure firms consider "whether an ongoing service is in a client’s best interest if they’ve persistently not engaged."
We are helping firms review their complaints handling procedures and approach to DSARs in light of the threat of service complaints and refund claims. We are focusing particularly on their approach to CMCs and claimant law firms and bad practices that persist despite FCA and SRA attention to these issues.
Firms will need to assess their potential refund exposure (since 2018, at least) as part of their normal prudential provisions and reporting but also any that have ambitions of M&A. The PE-backed consolidators and other buyers are viewing the FCA's feedback as a green light to resume activity but they won't acquire an adviser firm until satisfied about the extent of the exposure and their ability to deliver services. Firms are already checking their standard deal documents to address service delivery failures and refund liabilities (which are not necessarily covered by definitions of client claims about mis-selling or losses. Similarly, we're reviewing PI policies which used to exclude refund of fees as standard but that's no longer the case across the PI insurance market.
Final Word
As Simon Walls confirmed, it was a good outcome for the industry after a year of uncertainty at the largest firms. The FCA say they just "want a trusted sector that has relationships that work and a really important part of that is delivering what you have said you are going to deliver."
Doing nothing is not an option. As the FCA noted, "about 80% of revenue from adviser charges relates to charges for ongoing services from around 4 million clients". Those clients (watched closely by regulators and investors) can expect to get what they bargained for.
