Under the proposals, distributors would be required to present their own costs alongside product costs consistent with the CCI format when selling products. Credit: Shutterstock
The Financial Conduct Authority has launched a consultation on plans to simplify how platforms, advisers and wealth managers communicate costs to retail investors.
The changes are aimed at aligning cost disclosure requirements derived from the Markets in Financial Instruments Directive (MiFID) with the FCA's Consumer Composite Investments (CCI) regime, which the regulator finalised last year.
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Under the proposals, distributors would be required to present their own costs alongside product costs consistent with the CCI format when selling products, and account regularly for the total cost of investing.
Additionally, firms would be required to show how costs have impacted returns in regular post-sale reporting, removing the MiFID-derived cumulative effect illustration pre-sale and post-sale.
Other changes include requiring firms to use CCI cost categories in their regular post-sale reporting, removing most prescriptive requirements for business with professional clients, and streamlining rules for MiFID, Insurance Distribution Directive and non-MiFID business to reduce burden on firms.
The regulator has also moved to embed expectations around what consumers are told about the interest rates they will receive on their cash balances or any fees they pay on cash held in investment accounts
Firms should explain in a consumer-friendly way how they set the interest rate consumers will receive on their cash, the FCA said.
It has added a codified requirement ensuring firms do not both charge fees and retain interest on cash holdings – also known as ‘double dipping' – as it previously set out in its 2023 'Dear CEO' letter.
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The issue recently came into the spotlight at Rathbones where, following engagement with the FCA, a review of its due diligence led to it reviewing "certain aspects of its pricing as part of its ongoing commitment to delivering fair value for clients".
"The group intends to cease charging investment management fees on cash balances held within clients' discretionary portfolios from 1 July. This is expected to impact underlying profit before tax by approximately £9m for 2026," it said at the time.
Consumers have struggled to understand investment costs and their impact on returns, the FCA said, with 30% of non-advised platform users saying they did not know how much they were being charged for investing.
Stakeholders have until 21 August to respond to the consultation.
Lucy Castledine, director of consumer investments at the FCA, said: "We want more consumers to feel confident investing by getting clearer information in plain English on products and charges.
"The changes will give firms more freedom to innovate and communicate in ways that build trust and support informed decisions to help consumers navigate their financial lives."
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Holly Mackay, founder and CEO of Boring Money, said some industry players would be disappointed by the fact that transaction costs would need to be disclosed, as these can be presented pre-sale alongside a note that these may vary, deeming it "a sensible approach".
She was also positive about the ban on the "dodgy practice" of double dipping on cash.
"If you make money from interest – fine – but do not charge an opaque admin fee on top as well. I also welcome the proposed requirement for platforms to disclose more clearly when they retain a slice of the interest on clients' cash," she continued.
However, Mackay questioned the materiality of some of the proposed disclosures which will "add complexity".
"Transparency is not the same as clarity, and for an investor with a few £100 in cash, wading through illustrations which show the specific cost impact of this is arguably over the top," she added.
Meanwhile, Aidan Campbell, a partner with law firm CMS, highlighted how the FCA's review of pre-sale investment disclosure documents found only 6% were written in plain English
"It serves no-one for the language in these documents to be contorted to the extent that they are incomprehensible to most of the people who need to understand them. The FCA is clearly putting manufacturers on notice that they need to focus on making pre-sale investment disclosure documents easier for customers to read. The findings suggest there is a lot of work to be done," he said.
