FCA: ‘no systemic issue’ in review of firms’ ongoing advice to clients

Although the review by the Financial Conduct Authority (FCA) did not explore the quality or value of these services, the findings provide useful points on how to proceed when a customer does not engage, according to legal experts.

The FCA was reviewing whether financial advisers are delivering the ongoing advice services, such as investment performance reviews and suitability reviews, that consumers have paid for. Arranging transactions and managing relationships between retail clients and discretionary investment managers, provided that they relate to an initial investment arranged by a financial adviser, also fall within the range of ongoing advice services.

Financial advisers are allowed to charge a recurring fee directly on their clients’ investments for these ongoing services. This is usually a pre-agreed percentage taken annually out of the client’s investments.

The FCA was concerned that annual charges were being collected without the services promised being delivered. As a result, it reviewed 22 of the largest financial advice firms’ information and data on their delivery of ongoing advice covering the previous seven years.

The FCA found that the largest advice firms have been mostly compliant. In fewer than 2% of cases reviewed by the FCA, the clients did not receive the suitability reviews they had paid for and had been promised. The regulator has concluded that there is no systemic issue, but it will continue to monitor the situation.

Insurance regulation expert Chris Riach of Pinsent Masons said that given some advisers had already signalled an intention to remediate customers, the findings present a more favourable picture than was generally expected.

“While firms were found in only a small percentage of cases to have not attempted a suitability review, the FCA’s findings do not explore the quality or value of reviews provided. These findings will generally be welcomed in the industry after a period of uncertainty, but there may yet be further challenges especially as the FCA continues to evolve its fair value expectations under the consumer duty,” he said.

According to the FCA, in 15% of the cases, clients either declined or did not respond to the firm’s offer of a suitability review. As part of its findings, the FCA set out examples of good practice for firms to take when a client doesn’t engage with the ongoing services.

Daniela Ivanova, expert in insurance regulation at Pinsent Masons, said: "The FCA has made some very useful points around how to proceed when a customer does not engage. It expects a firm to make ‘reasonable and proportionate attempts’ to engage with the customer and, if a customer has persistently not engaged, it expects the firm to consider whether an ongoing service is in that customer’s best interest.”

“Firms should use their judgment to determine what is persistent non-engagement and whether redress would be appropriate,” she said.

Following its review of the 22 largest firms, the FCA expects all remaining advisers to carry out proactive reviews dating back to 2018 and to reach out to impacted consumers. The FCA said it will monitor complaint numbers and intends to conduct further work later in 2025 to assess how firms have responded to the issues identified and review actions that they have taken.

“With the FCA under scrutiny to demonstrate its pro-growth credentials, this seems like a good news story for the industry,” said Riach.