In a striking departure from its previously stated concerns regarding the widespread failings in the provision of ongoing financial advice services, the Financial Conduct Authority (FCA) has now published a report indicating that the vast majority of such services have been duly delivered. The contrast between the regulator’s initial apprehensions and the ostensibly favourable outcome of its review is, to say the least, disconcerting.
A few years ago, the FCA began to scrutinise the financial advisory sector’s reliance on ongoing service fees, which accounted for approximately two-thirds of the industry’s annual revenue—amounting to an estimated £5 billion. The regulator’s inquiry centred on whether these services were actually being rendered and, indeed, whether they were necessary in the first instance. The findings at that time suggested that numerous clients had not been engaged by their advisers for several years, despite incurring ongoing charges. Moreover, there was substantial evidence of reviews being manufactured to justify fees, often reduced to perfunctory, tick-box exercises devoid of substantive financial reassessment.
Following the implementation of MiFID II, the mere offering of a review was no longer deemed sufficient; such reviews were required to be demonstrably executed. Yet, despite these regulatory imperatives, significant concerns persisted regarding the legitimacy of ongoing service charges. Many clients were subjected to a perfunctory assessment of their attitude to risk, with no material change in investment strategy, all the while incurring fees that, in some instances, amounted to thousands of pounds annually. One might reasonably question whether such an expense is justifiable for nothing more than a cup of coffee and a friendly chat.
Against this backdrop of serious regulatory concerns, it is astonishing to find the FCA now proclaiming that all is well. According to its latest review of 22 major financial advisory firms, 83% of suitability reviews were executed, with a further 15% of clients either declining or failing to respond to the offer of a review. Only a meagre 2% of cases were found to have entirely failed to meet the standard. The regulator’s conclusion, then, is that there is no systemic issue, and the matter is largely resolved.
This finding is at odds with the experiences of consumers, legal professionals, and claims management firms that have dealt with numerous cases where services were either deficient or entirely absent. The conclusion also diverges markedly from precedents in other jurisdictions, such as Australia, where similar concerns culminated in the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. That inquiry exposed systemic abuse in the financial advisory sector and led to extensive remediation measures.
One cannot help but observe the striking alignment of the FCA’s newfound leniency with the government’s broader growth agenda. The Treasury Select Committee and the Chancellor have exerted considerable pressure on both the FCA and the Financial Ombudsman Service (FOS) to adopt a more industry-friendly stance. It is surely no coincidence that the FOS has recently been stripped of its ability to conduct free case reviews where consumers have legal representation, nor that mass redress initiatives now require government approval. Such measures serve only to insulate the industry from accountability, to the evident detriment of the consumer.
Given these developments, one is left to wonder: is the financial advisory sector genuinely reformed, or are we merely being strung along? The FCA’s announcement may provide reassurance to those with vested interests, but to the informed observer, it raises more questions than it answers. The imperative for regulatory vigilance remains as pressing as ever, for if history has taught us anything, it is that financial scandals do not simply disappear—they are either addressed or conveniently forgotten.
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