PIMFA raises concerns over FCA’s consumer investment disclosure proposals

The Personal Investment Management & Financial Advice Association (PIMFA) has raised concerns over several proposals in the Financial Conduct Authority’s (FCA) consultation on simplifying consumer investment disclosures.

The consultation sought views on simplifying how advisers, wealth managers, and platforms communicate the costs of investing.

While the association voiced its support of the overarching objective of simplifying disclosures to support consumers with investment decisions, it warned that several of the proposals would have the opposite effect given the complexity of the regime and low levels of financial literacy.

Furthermore, PIMFA highlighted a lack of clarity around how the proposed scope of some of the rules applied to different business models within the sector.

It said the proposals were a significant change for firms that are not currently in scope of FCA guidelines, with the association concerned that changes of this magnitude would require careful consideration and full consultation.

A particular area of concern identified by PIMFA was the presentation of post-sale costs and charges.

“The proposal to use a different presentation basis from pre-sale disclosures is difficult to reconcile, as consistency will help support consumer education, manage expectations, and support good decision making,” said PIMFA senior policy adviser, Julia Sage-Bell.

“The proposals expect consumers to understand the difference between explicit costs and those integral to the running of the fund on a pre-sale basis, but on a post-sale basis, they are expected to understand that these costs have been aggregated.”

PIMFA also warned the scope and application of several proposed requirements were unclear, and while the requirements may be relevant and achievable for some businesses, the wider sector implications did not appear to have been fully considered.

“The proposals appear to be geared towards vertically integrated firms and platform businesses, where data can be obtained and aggregated with ease, while consideration has not been given to how other firms will meet the requirements,” Sage-Bell stated.

“The scope of the prohibition on the retention of interest and fees on cash holdings is also unclear, as the proposals make no reference to how it applies to firms with outsourced custody arrangements, model B propositions, vertically integrated firms, and discretionary fund managers. The same point applies to the disclosure requirements.”

The proposal to require firms to show the effect of costs on performance in regular post-sale reporting was also cited as an area of concern, with PIMFA calling for all cumulative effect of cost disclosure reporting to be removed, as it risked introducing an overriding focus on cost rather than performance or long-term returns.

“The proposals also contain a requirement to show the effect of costs and charges over the period during which the firm has provided the product to the client,” said Sage-Bell.

“This places a disproportionate burden on firms, who would need to gather historical cost and performance data and track it through switches, fund changes, sales, and additional investments.

“Given that firms would need to deploy significant resources to adhere to this requirement, and that the benefits for consumers are currently unclear, we have urged the FCA to omit this from the final rulebook.”

Other concerned raised by PIMFA included disparity across the range of costs and charges disclosures, and clarity around the disclosure of the pre-sale costs of investing.

“Transparency of costs and charges is absolutely critical to build trust within the industry,” Sage-Bell added.

“To achieve this, consumers need to be given relevant information at the appropriate points in the journey. Information overwhelm and complex explanations of concepts outside the consumers control will add to confusion rather than supporting informed decision making.”

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