Of the 58% of firms failing, the Financial Conduct Authority said wealth managers and private banks were the poorest performing in nearly all aspects.
It also found that nearly three quarters of firms are not fully revealing how much advice costs, the type of service they offer or what on-going services they provide.
The results came in the second part of the FCA’s three-cycle assessment of how firms have implemented the disclosure elements of the Retail Distribution Review (RDR).
The RDR came into force at the beginning of 2013 and introduced new disclosure requirements for financial advisers. It aimed at improving transparency for consumers to ensure they have the information needed to make informed decisions, and are clear on the costs and services of advisory firm.
The research found that 50% of firms had failed to give clients clear confirmation on how much advice would cost them as individuals, while 58% of firms failed to give additional information on charges.
34% of firms had not given clients a clear explanation of the services they offer in return for an ongoing fee.
Furthermore, 31% of firms offering a ‘restricted’ service, where they cannot advise on the full range of financial products and providers available, had failed to disclose details of how exactly they were restricted.
Clive Adamson, director of supervision at the FCA, said the results suggested some consumers were being misled.
“RDR has involved a major change to the investment advice landscape,” he said. “While we have seen a lot of positive progress and willingness by advisors to adapt to the new environment, I am disappointed with the results of our latest review looking at whether advisers are clear with their customers on costs and services provided.
“These results are a wake-up call and we expect the industry to respond.”
Sam Instone, chief executive at AES International, said that this is a long standing problem.
“I think the financial services have historically been unclear about their prices.
“If the industry is going to progress it is critical that they begin to be absolutely open about everything and domestic reviews will gradually reveal those professionals who don’t treat customers fairly.
“For years, banks and wealth managers have often been more interested in shareholder return than clients, meaning that sometimes they act mostly to make money for themselves.
“I think RDR is fine, it is the wealth managers who are the problem. It is early days for the review and given its wide objectives I think it is doing a good job.”
Lee Robertson, chief executive at wealth manager Investment Quorum, said the failure was more an issue of clarity than dishonesty.
“I don’t think that over 70% are doing it on purpose I think it is more a case of misinterpretation.
“If so many people are getting it wrong then perhaps more clarification is needed from the FCA.
“Some firms then need to revisit their tariffs because customers are struggling to completely understand the charges they are receiving.
“I don’t think RDR needs to be changed, it was quite draconian anyway.”
“In larger firms it is harder to get a standardised approach to charging than it is in smaller companies as a result of a larger amount of business and own brand products.”
The FCA will be starting the third cycle of its disclosure review at the end of 2014. If firms are still not complying with disclosure rules by then, the regulator has said it will consider further regulatory action, including referrals to enforcement.
In July last year, the FCA published the first of its thematic reviews into the implementation of the RDR and revealed many firms were incorrectly claiming to be independent. Click here to read more
