Recent research by the FSA found that over half of firms surveyed are failing to follow its new rules on disclosure of firm status and commission charges, introduced under depolarisation last year. These two 'keyfacts' documents are important tools for helping consumers understand how the new advice regime works.
The regulator carried out 130 mystery shopping assessments of 81 firms of all sizes. This showed that advisers gave out both of the required documents in only 58% of the assessments. And in only 42% of the assessments were both of the documents given out and at the right time.
The FSA also carried out desk-based work into the contents of 519 disclosure documents from 168 firms. 65% of these documents contained errors and many of these were in key sections that could make it difficult for consumers to compare and shop around.
Clive Briault, managing director of retail markets at the FSA, said:
"FSA rules are not optional and these results are very disappointing. These firms are not new to regulation and senior management should be well aware of their responsibilities for compliance with our rules. Those firms that are not complying must review their procedures as a matter of urgency and make the necessary changes.
"The principle of Treating Customers Fairly should be embedded in firms' business models. Disclosure documents are crucial for consumers. Firms need to comply with our rules to ensure that consumers obtain the key information when they need it to make an informed choice.”
Since 1 June 2005 firms have been required to give customers 'keyfacts' documents – 'keyfacts about our services' (also known as the initial disclosure document) and 'keyfacts about the cost of our services' (also know as the menu) - at the start of the advice process. These documents were introduced to provide consumers with clear, straightforward information to help them understand the services and products a firm offers, the fees or commission it charges, and the other options available elsewhere in the market.
The FSA will continue to work closely with firms, trade associations and other stakeholders to communicate its findings and to clarify the application of its rules where it has identified common errors. It has also produced a factsheet and examples of good and bad practice for small firms.
The regulator will be contacting firms to ask for further information to help evaluate their compliance. It will consider the most appropriate tools to address any non compliance that is identified, which may include referring individual firms to enforcement.
The FSA will also be gathering additional information from firms and conducting a further round of mystery shopping later in the year to make sure that firms have improved their procedures.
