The UK regulator said the research findings show the majority of adviser firms have made progress conforming to the new Retail Distribution Review rules over the six months since its implementation and there has been a willingness to adapt. However, it also pointed out there remain some problems.
Among these are that some advisers are showing charges in percentage terms as opposed to cash, which some consumers find confusing; and some advisers are not clearly explaining what service customers receive for on-going fees.
As part of the review, the first of three planned over the next year, the FCA used independent research into the effectiveness of adviser documents. Findings from this research, conducted by NMG Consulting, revealed a number of common issues causing misunderstanding, confusion or frustration.
NMG’s poll of 131 advisers found the most frequently used method of delivering the initial disclosure document is in a meeting with 74% either talking it through in detail, or highlighting the key points. “This does not support consumer decision making on selecting an adviser or deciding whether to work with them.”
Instead NMG has suggested that better designed documents are vital, as is the elimination of industry jargon within the disclosures. “Because the documents are difficult to read and engage with, many of the participants in this study simply default the responsibility of all disclosure to the adviser, placing the onus on the adviser to ensure understanding.”
According to NMG’s research the level of understanding around restricted advice is low. Many simply assume independence as the model being offered and most of the documents tested did not explain restricted advice in a way that people understood.
"There is almost no understanding of the difference between independent and restricted advice. Most people believe that all advisers, with the exception of those employed by banks, are independent. There is a belief that while advisers may be ‘independent’ they probably have a number of favourites who they are most likely to recommend.
"When participants apply this assumption to the documents it means that critical points around the scope of service between independent and restricted models are often missed."