Ongoing advice servicing is currently the biggest challenge for the wealth sector and probably will be for some years to come.

Paying for what you don’t need or receive

One of the key concerns from the FCA – one that it has had for several years – is that many advice clients sign up for an ongoing service that they don’t need or get. Latest FCA findings suggest 90% of clients who receive advice end up in an ongoing service proposition.

The problem stems back to the Retail Distribution Review (RDR), which took effect in 2012. At that point, most advisory firms changed their advice models, business models and charging models. This saw the sector effectively move away from initial commissions as a way of getting remuneration and commissions as they were banned on the introduction of RDR. This trend then saw firms change to advice models that meant they could get paid for providing ongoing services – and the central part of the ongoing services – ongoing advice. We have recently commented on how to stay ahead of FCA expectations on ongoing advice services in Money Marketing in April 2024.

The introduction of the Consumer Duty in July 2023 gave the FCA more tools to act. We have since seen the regulator make louder noises about its concerns. For instance, there have been two surveys relating to ongoing servicing issued recently.

The first quantitative survey, distributed in February this year, was only directed to the 20 largest advice firms and was all about firms telling the FCA how many of their customers receive ongoing advice and ongoing reviews.

More recently, a second survey has been released, and the nature of these questions is much more qualitative. Within this second round of scrutiny, the regulator has asked firms questions including:

• how do you carry out ongoing reviews
• how often do you update the client’s attitude to risk
• and how often you update their personal circumstances

This survey drives at trying to understand what firms are doing for their customers in the context of an ongoing advice review.

Supervisory activity

We’re very aware that there are several Section 166 programmes underway that are focused on the delivery of ongoing advice servicing. This has resulted in lots of activity from organisations as they look to strategise their approach before the FCA pushes them to undertake any reviews or carry out any remediation.

We expect that for some time to come, there’ll be a continuation of this intense FCA supervision followed by a significant amount of remediation over the next few years, and there’ll still be a great deal of inconsistency in the sector.

All this comes as we await the publication of a further regulatory ongoing advice servicing update, which we expect later this year. Ongoing advice servicing impacts all advice businesses as they have shifted to an ongoing service model, often struggling to demonstrate these services.

It’s also worth noting that compensation payments as a result of not delivering a service are not generally covered by professional indemnity (PI) insurance. So, any customer compensation is likely to cost a business directly without the ability to recover the costs from a third party. Therefore, if the FCA follows through on what it has said so far, all indications show that the regulator will be taking a very hard line on matters linked to ongoing advice.

Get in touch today to find out how TCC’s experts can help your firms overcome their ongoing advice challenges.