The Financial Conduct Authority has published an early review of how advisory firms have implemented some of the core aspects of the Retail Distribution Review, which took effect in January. It found that the majority of firms have made progress, along with a willingness to adapt to the new rules.

However, the FCA expressed concern about a number of common issues which had led to confusion among clients, including the disclosure of charges and fees, as well as the way firms explained their restricted or independent status.

Between February and April, the FCA sent 50 questionnaires to firms asking them to give details about how they give information to clients and their charges. It is the first of three reviews planned over the next year to assess what progress advisory firms are making to meet the new RDR rules.

The FCA said that those firms which provided charges in percentages, rather than in cash terms, had caused confusion among consumers that as a result had struggled to calculate the cost of advice when they had to work out how much they needed to pay.

The report also highlighted how some firms’ charging structures that included hourly rates did not provide sufficient information for a client to understand the likely cost to them.

As part of the RDR, firms must explain whether the services they provide are independent or restricted.

Whilst the FCA said that most had managed to do this correctly, some firms had inaccurately described themselves as independent when in fact they were restricted.

In one example, the FCA said that a firm which described itself as independent was directing 98 per cent of its business to one platform provider.  

Another firm also offered different service levels consisting of a standard panel of managed funds. However, in practice, 99 per cent of clients were advised to invest in the managed funds and the firm did not have the resources to provide an independent service for all clients.

The FCA also drew attention to the problem of firms not being clear about what ongoing services they would provide.

"This early view shows that while firms have acted, they still have more to do to if a customer is going to be in the best possible position to understand the price they will pay and the service they will get for that price," said Clive Adamson, director of supervision at the FCA.

“Firms should carefully consider the feedback covered in this report. We strongly encourage advisors to look at the examples highlighted, and take immediate steps to help their customers better understand the charges and services being offered,” Adamson added.

The FCA is also sending a fact sheet to over 6,000 advisory firms to help them assess whether the common issues found apply to them.

Following the implementation of the RDR in January this year, the investment market has experienced significant changes, with a number of recent surveys highlighting a wave of consolidation amongst firms.

A report released by Fidelity in June found that almost two-thirds of UK advisors feel the RDR has led to an increase in outsourcing their investment portfolio management, with the majority expecting to increase their use of managed fund solutions and model portfolios as a result.

According to figures from the Association of Professional Financial Advisers, ahead of the RDR the number of financial advisors fell from 26,339 in December 2012 to 20,453 as of 1 January 2013.