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UK Financial Services Consumer Panel report and position paper on online investment services
Dated 16.12.2016, the UK Financial Services Consumer Panel published its report and position paper on online investment services.

Background to the report:

Concern with lack of transparency and consistency in online investment services, thus July 2016 commissioned Boring Money Ltd to investigate the consumer experience. Clarity of offer, cost and regulatory protection when problems. Aim was to highlight both good and bad practice and offer recommendations for the regulator and firms that would help improve consumer engagement and trust in the sector. The Panel commissioned research to:
  • Understand what firms offered to investors and how those propositions were being communicated;
  • Assess the extent to which firms made clear to consumers whether they were providing regulated advice and the implications this would have on potential complaints and redress;
  • Assess whether firms were adequately communicating risk to consumers;
  • Assess whether the language firms’ websites used was consistent, easy-to-understand and clear, including identifying misleading or unclear statements that may undermine consumer understanding; and
  • Identify shortcomings in transparency of costs and charges and how services were paid for.
The Panel will use this research to recommend minimum standards for improving transparency, communication and consumer protection in the sector. The study comprised of two main strands – a live ‘walk through’ as consumers used the selected services, and a professional assessment of the same services.

The research found:

  • The regulatory distinctions between guidance and advice and its associated implications, such as recourse to the Financial Ombudsman Service (FOS) and Financial Services Compensation Scheme (FSCS), were not clear.
  • References to the FOS and FSCS were not prominent on many websites.
  • Costs and charges were poorly communicated, often misleading and difficult to find. They were typically disclosed in a way that made it difficult for consumers to understand how much they would be paying and what for. Only one of the 15 consumers who used the websites was able to calculate correctly what the total cost of a £1,000 investment would be.
  • Several firms promoted ‘all-in’ fees that did not include additional costs borne by the consumer, such as underlying fund charges. Additional costs were always provided separately to fees and were always in smaller fonts, at the bottom of pages or hidden in charts.
  • Firms did not use language that consumers understood. Whilst some websites were better than others, jargon was prevalent and explanations were frequently misleading. The language used generally assumed an unrealistic level of familiarity even with concepts that might be expected to be widely understood, such as ‘funds’ and ISAs.
  • While the language used in risk profile questionnaires was usually clear and well understood, the language used to describe portfolios was generally unclear and confusing to consumers.

Report Conclusion and Recommendations

These findings indicate that, despite rules already being in place to protect consumers (see Annex 2), there are serious shortcomings in the online investment sector that need to be addressed if consumers are to get good outcomes. Poor practice relating to transparency, clarity and consistency mean some firms are not treating their customers fairly and are failing to meet their needs.
The Panel concludes that there is a need for the FCA to clarify the rules across the online investment market, whether or not regulated advice is being provided. This is all the more important if the current definition of advice is changed in the way the Treasury has proposed1. It is also something for the FCA to consider when it is developing a framework for ‘streamlined’ advice under the FAMR recommendations.

The Panel’s recommendations are:

1) The FCA should clarify existing rules, including issuing guidance, to ensure providers of online investment sales and advice are reminded of the need to:
  • Be clear about the service being provided, i.e. whether it is regulated advice with a personal recommendation; regulated advice without a recommendation or self-service execution-only sales, and what protection (if any) is afforded by the service;
  • Disclose in clear terms all costs and charges relating to the service provided and the management of the investments;
  • Make clear in what circumstances, if any, consumers would have access to the FOS;
  • Make clear the role of the FSCS and under what circumstances consumers would have FSCS protection by making this information more prominent;
  • Present terms and conditions in such a way that key terms and risks are brought to the attention of consumers; and
  • Present risk profile descriptions and investment choices in a way that is consistent, easy to understand and promotes good consumer outcomes.

2) The FCA should establish a working group, including consumer bodies and industry, to develop simpler, more consumer friendly language

3) The FCA should enforce its rules.

ID: 49116
Author(s): SCR
Publication date: 13/01/17

FSCP Position Paper: Online investment and advice services - the consumer experience

Report: Assessing online investment and advice services by Boring Money on behalf of the FSCP

Created: 13/01/17. Last changed: 13/01/17.
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