FCA proposals to simplify investment disclosure could see consumers overwhelmed with too much information and complex explanations, according to wealth management trade association PIMFA.
PIMFA has shared concerns over the proposals’ potential to add confusion for consumers.
In its response to the FCA’s Simplifying Consumer Investment Disclosures consultation (CP26/24), PIMFA supported the overarching objective of helping consumers make better informed decisions about investments.
But it has raised concerns that some of the proposals may have the opposite effect, given the complexity of the regime itself and the reported low levels of financial literacy.
Julia Sage-Bell, PIMFA senior policy adviser, said: “Transparency of costs and charges is absolutely critical to build trust within the industry. 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.”
PIMFA warned that the FCA proposals for the presentation of post-sale costs and charges present a particular area of concern. Under the current proposals a different presentation basis will be used compared to pre-sale disclosures.
Ms Sage-Bell said: “Consistency will help support consumer education, manage expectations, and support good decision making. 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.”
According to PIMFA, the scope and application of many of the requirements in the consultation paper are unclear. While the requirements may be proportionate, relevant and achievable for some businesses, the wider industry implications do not appear to have been fully considered.
It highlighted how the proposals around retention of interest and disclosure requirements make no reference to how the rules would apply to firms with outsourced custody arrangements, model B propositions, vertically integrated firms and discretionary fund managers.
PIMFA also voiced concerns around the proposal to require firms to show the effect of costs on performance in regular post-sale reporting.
Ms Sage-Bell explained: “We believe all cumulative effect of cost disclosure reporting should be removed, as it risks 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. 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.”
PIMFA is a trade body for wealth management firms. It was created in 2017 as the outcome of a merger between the Association of Professional Financial Advisers (APFA) and the Wealth Management Association (WMA).