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FCA Regulated Firms Must Clarify their Charges

Wednesday, 11 June 2014

The FCA has instructed regulated firms to make their charges clearer to retail investors following a review of 11 different firms.

The financial watchdog found that the majority of firms were presenting their charging structures in a clear and fair way but that a number were still not doing so.

It is important that FCA regulated businesses take on board this message from both a regulatory and marketing perspective. Financial firms are already under the microscope after the financial crisis and those that actively build trust with investors are also likely to keep the regulator happy.

Clear and Comparable Charges

Retail investors, like other consumers, are becoming more savvy about comparing the costs of the services that they buy. Instant access to competitor websites means that comparisons are relatively easy to draw up for most goods and services. However, the different charges that can make up the costs of financial products can be confusing if there is a lack of consistency in the way they are presented.

Presentation of other comparables such as the risk profile of the fund and its performance are also important.

The overall costs of funds can include management charges, performance fees and other costs of administering the fund. While a combined figure gives a clear picture, separating out these figures and referring to different elements of the cost in different sections of marketing material can cause confusion for non-professional investors and make cross-fund comparisons difficult.

Regulated firms are under an obligation to present information to investors in a way that is clear, fair and not misleading.

The FCA’s Findings

The findings of the FCA were not wholly negative. As noted above, it considered that the majority of the firms it reviewed were marketing their businesses in a clear and fair way.

Its criticisms mainly referred to:

· Firms that did not include a clear, combined figure for charges in their marketing material and website information.

· Inaccurate descriptions of the operation of administration charges.

Drawing attention to areas of good practice noted in the review, the FCA highlighted:

· Consistent use of summaries of charges across marketing materials and websites to reduce the risk of confusion by retail investors.

· Designing of marketing materials for retail investors rather than professionals.

· The use of questionnaires to help investors understand the funds and charges.

Comment

The FCA review demonstrates once again the increasingly pro-active approach of the financial watchdog compared to its predecessor. Although best practice in these areas is supported by voluntary guidance rather than statutory regulation, it is clear the FCA is willing to take firms to task over perceived failures.

For specialist advice regarding regulation and compliance contact James Crighton jcrighton@rollingsons.co.uk or telephone 0207 611 4848.

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