Entering its second year, the implementation of Consumer Duty remains at the forefront of financial regulatory discussions, underscoring its pivotal role in ensuring that financial advisers are putting the interests and well-being of their customers first. This regulation marks a significant step towards a more ethical, customer-centric approach within the financial services industry, setting a concrete expectation for financial advisers to deliver fair value, transparency and positive outcomes for consumers. It's not just about compliance; it's a fundamental shift towards prioritising the financial health and satisfaction of customers, reshaping the way financial services operate and how they communicate with their clientele.
This article embarks on a comprehensive exploration of the first year of consumer duty, delving into the regulation's impact on firms, the Financial Conduct Authority's (FCA) review and the adjustments and challenges faced by financial advisers and institutions. Through this analysis, we'll uncover the key takeaways from the regulation's inaugural year and contemplate the future outlook of Consumer Duty in shaping a more consumer-focused financial landscape.
One year of Consumer Duty: A recap
Consumer Duty, introduced by the regulator, the Financial Conduct Authority (FCA), mandates that firms act to deliver for key outcomes:
Products and services: Ensuring that products and services are designed to meet the needs of consumers.
Price and value: Offering products and services that provide fair value.
Consumer understanding: Ensuring that consumers are provided with clear and transparent information to make informed decisions.
Consumer support: Delivering responsive and effective customer support that meets consumer needs throughout their relationship with the firm.
The main objective is to elevate the standards of care that financial advice firms owe to consumers, ensuring that their actions and communications support customers in making informed decisions about financial products and services.
Over the past year, several key milestones have marked the implementation of Consumer Duty. Initially, the FCA set clear expectations for compliance, followed by phases focusing on training and internal policy adjustments within firms. Significant events included the introduction of new reporting requirements and the establishment of monitoring systems to ensure ongoing compliance. These steps were crucial in setting a foundation for a more ethical approach to consumer finance.
The FCA's first review
The FCA has conducted its inaugural review of the implementation of Consumer Duty, emphasising the necessity for firms to ensure good outcomes for customers. This review scrutinised firms' adherence to delivering fair value and transparency as mandated by the Duty. It was noted that while many firms have made commendable improvements, others are still falling short. The FCA has committed to highlighting both good practices and areas needing enhancement, aiming to continuously address issues that may cause consumer harm.
Key areas monitored by the FCA
In its review, the FCA focused on several crucial aspects:
Implementation plans and fair value frameworks: The FCA examined firms' implementation plans and their frameworks for assessing fair value. This evaluation aimed to ensure that firms are not only compliant but also dedicated to providing true value to consumers.
Consumer outcomes assessment: Firms are required to assess and evidence the outcomes that their customers are receiving. This includes monitoring products and services to ensure that they deliver expected outcomes in alignment with the Duty. Any evidence of poor outcomes needs to be addressed promptly, with necessary actions taken to mitigate risks and rectify issues.
Governance and strategy alignment: The FCA expects firm boards and senior management to place good outcomes for consumers at the core of their culture, strategy and business objectives. This includes setting up systems to identify and to meet the needs of vulnerable customers effectively.
The review highlighted the need for firms to enhance their use of data and analytics to demonstrate compliance and to make necessary adjustments ahead of the upcoming implementation deadline for closed products and services set for 31st July 2024. The FCA has made it clear that it will take decisive action against firms that fail to deliver satisfactory customer outcomes, including possible interventions, investigations and disciplinary actions.
Summary board reports
In response to the Consumer Duty, firms have been diligent in preparing comprehensive board reports that assess and document the outcomes of their customer interactions, ensuring alignment with Duty's principles. These reports are critical as they not only review customer outcomes but also confirm compliance with the Duty and assess the alignment of the firm's business strategy with Duty obligations. The board plays a pivotal role in this process, reviewing and approving these reports, which include detailed actions taken to address any identified weaknesses or areas of non-compliance.
Implementation strategies
Firms have adopted proactive strategies to align with the Consumer Duty requirements. This includes setting clear roles and responsibilities to ensure accountability at all levels of the organisation. The development of a project plan is crucial, outlining the tasks and milestones necessary to meet the Duty's standards. Additionally, firms have focused on enhancing their data and metrics to better understand and improve customer outcomes. This approach is supported by robust governance frameworks that facilitate ongoing scrutiny and adjustments as needed.
As part of their adaptation strategies, firms have also prioritised cultural changes, aligning their company values and training programs to emphasise the importance of good consumer outcomes. This includes revising staff incentive structures to ensure that they reflect the Duty's goals, thereby fostering a culture of accountability and customer-centricity. Furthermore, firms are enhancing their technological capabilities to support effective data management and customer support, crucial for meeting the ongoing demands of the Duty.
These strategic adaptations are designed to ensure that firms not only comply with the Consumer Duty, but also embed these principles into their core operations, promoting transparency and fairness in their dealings with consumers.
Path Forward: Addressing Unresolved Issues
Identifying gaps and finding solutions
As you move forward with the implementation of Consumer Duty, it's crucial to identify and address gaps in compliance and customer outcomes. Firms should not only focus on meeting regulatory expectations but also on genuinely understanding their customers' needs and issues. This involves enhancing data collection through the use of client surveys for example and reassessing their client segmentation to ensure that all groups, especially the most vulnerable, receive the support that they require and do not experience poorer outcomes than others.
Preparing for future expansions
The upcoming deadline on 31st July 2024 for closed products and services demands a robust preparation strategy. Firms should already have a process in place to review these products to ensure that they continue to offer fair value and meet Consumer Duty requirements. This includes leveraging data from open products to maintain consistency and prioritising the review of products or services with a higher risk of consumer harm. It's also essential for firms to have clear strategies for product treatment to mitigate any identified risks effectively.
The path forward involves a continuous commitment to refining processes, enhancing data capabilities and maintaining a culture that prioritises excellent customer outcomes. By addressing these unresolved issues, firms can not only comply with Consumer Duty but also foster long-term trust and loyalty amongst their customers.
What are the ASHL Group doing?
Reflecting on the year since the implementation of Consumer Duty, it's clear that the regulation has ushered in a commendable shift towards a more customer-centric financial advice industry, but it has not been easy for anyone, but perhaps easier for those who have the support of a network. Through the concerted efforts of financial institutions, progress is being made in enhancing communication, providing value and fostering transparency. Client feedback statistics resonate with this positive change, evidencing an uptick in consumer satisfaction and a reduction in grievances related to product suitability and transparency. This marks a pivotal step in aligning financial practices with the ethical standards and expectations set forth by the Financial Conduct Authority, solidifying the cornerstone of consumer trust and loyalty in the financial sector.
At the ASHL Group of Companies, the support that we have been offering to firms has been ongoing. In terms of the 4 outcomes:
Products and services: As a group, we have updated our requirements and processes for firm’s advice propositions, including centralised investment and mortgage and retirement propositions. This was achieved through our ‘raising the bar’ initiative, where we challenged ourselves and our member firms to ensure that all aspects of advice propositions were working to deliver good outcomes for customers.
Price and value: We have developed the ASHL Fair Value Framework, which involved looking at how our Network level requirements on advice charges interacted with the fee structures that our firms operated. As a result of this work, we have seen more firms changing their structures to introduce both minimum and maximum fees, to ensure that charging models are both commercially viable for firms, and the end client receives fair value.
Consumer understanding: We have reviewed all key customer facing documents and have completely rewritten many of them. Our intention has been to write with the client in mind and to remove or simplify any jargon or unnecessary information. In addition, we have worked with the Plain English campaign to seek their guidance on style and content – and have achieved their Plain English crystal mark as a result.
Consumer support: Our focus here has been to ensure that our advisers and staff have the help and information that they need to identify and support clients with characteristics of vulnerability. We have designed a comprehensive Vulnerability Framework, with detailed definitions of characteristics of vulnerability and guidance on additional support. In addition, we have engaged with Co:mentis, to adopt their vulnerability assessment tool and make this available to all of our member firms.
Looking ahead
Looking ahead, the ongoing expectation is that firms continue to refine their strategies and operations in adherence to Consumer Duty outcomes. As the industry ventures into the next phases of implementation, particularly with the impending deadline of 31st July 2024 for closed products and services, the emphasis on continual improvement and compliance cannot be overstated and the support that is required to adhere to these outcomes cannot be underestimated. Addressing unresolved issues and identifying gaps require a proactive approach, evident through enhanced data analysis and a culture deeply rooted in prioritising consumer outcomes. The path forward is paved with challenges, but the opportunity to redefine the standards of financial services, in line with Consumer Duty, promises a future where financial well-being is at the heart of every transaction.
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The ASHL Group only partner with UK based financial advisers and planners who are committed to positive client outcomes, which is why we are able to leverage the size and quality of the group, to deliver award winning PII cover and which is why, unlike some other networks, we have no legacy compliance issues. Our goal is to provide our membership with opportunity, resource and reassurance. Discover our Network Services & Benefits brochure and get in touch today for an initial conversation.
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