William Marshall highlights five things financial advisers should do now to prepare for the Consumer Duty
The Financial Conduct Authority (FCA) issued its final guidance and rules on the new Consumer Duty at the end of July this year. In this article, we consider the priority tasks that will likely feature on an adviser’s to-do list when preparing for implementation.
Bear in mind that the FCA announced a staggered compliance deadline of 31 July 2023 for products and services that are open to new business and 31 July 2024 for back-book products that are closed to new business.
On closer inspection, many advisers will already be familiar with the themes highlighted by the new regulation. The Consumer Duty builds on the FCA’s existing priorities and various pieces of regulation and guidance that it has issued recently. And so, for many, the main things to concentrate on will be those that not only ensure better consumer outcomes but also the ability to clearly evidence them.
1 Gap analysis
A sensible starting point for most firms will be a gap analysis to assess where they currently are against the requirements. The Policy Statement and Finalised Guidance contain lots of information to support this analysis. There are details for each of the four outcomes: products and services; price and value; consumer understanding; and consumer support. For each outcome there is a helpful set of expectations and requirements, while an assessment can be made as to whether the firm is already achieving the standard or still has further work to do.
2 Getting the senior management team involved and assigning responsibility
The results of the gap analysis should then be clearly communicated to the senior management team and senior leadership. An essential part of the Consumer Duty is to bring the topic of consumer outcomes front of mind for senior decision-makers, so the desired cultural impact is felt throughout the whole company.
Many senior management teams will already have had some initial training but next steps could be to discuss the gap analysis and agree the plan of work. At this point, it would also be useful to assign the senior manager that will have accountability for each part of the action plan. The Consumer Duty refers regularly to the Senior Managers and Certification Regime, so it would be helpful to assign the individual responsibilities upfront.
3 A plan for changes (including IT and training)
Some findings from the gap analysis may identify processes that need to change. This will require time – firstly to set out what the new processes are and then time to roll out a training programme to all of the teams involved.
Other findings, related to value assessments, may require a review on charges as well as the services delivered.
It is also worth noting that the FCA added an additional deadline when it said all firms should have agreed their implementation plans and have a clear line of sight to the delivery of the implementation work by the end of October this year.
4 How to evidence outcomes and actions taken
Evidencing that the right steps have been taken to consider consumer outcomes is a central theme of the new duty and there will likely be additional management information (MI) requirements for most firms. Having decided what these are, it will then be a question of checking how that data will be gathered and presented in an informative way.
At this stage, it would be useful to start reviewing early cuts of the MI during discussions with senior management to consider how to assess trends before deciding when interventions might be required.
With all of this, firms will be dealing with something that is new and untested. So, there will be areas where it is potentially tricky to work out exactly what the FCA will want to see. To help with this, there are some really useful examples of good and bad practices in the Finalised Guidance paper. Consideration of these examples, including how different parts of the distribution chain, such as distributors and manufacturers, should be taking responsibility and how the expanded requirements sit against centralised investment propositions could be a helpful way to explore the depth of the requirements. Firms may wish to consider the level of due diligence they undertake on providers and how that evidence ties into their own obligation to demonstrate a distribution strategy.
Another area that might require a bit of deliberation is working with suppliers and distributors to assess where different responsibilities sit. With the Consumer Duty applying across all parts of the chain, it is recommended to have early discussions with other parties so that responsibilities are clear and there are no gaps in accountability.
5 Remember vulnerable customers
The topic of vulnerable customers is an important part of the FCA’s focus and comes up regularly throughout the consultation. At this point, it is probably worth revisiting the guidance from FG21/1. If these points of guidance haven’t been picked up already, now is the time to ensure specific guidelines and processes are in place for identifying when someone may be at additional risk of harm and then ensuring there are ways to help them avoid that harm.
Advisers should also devise their Consumer Duty monitoring and records framework, showing outcomes monitoring, root-cause analysis where customers have received poor outcomes, and changes addressing those poor outcomes.
By following this action plan, advisers should be in the best position possible to meet the requirements of the new Consumer Duty and achieve the required goal of acting to deliver good outcomes for retail clients.
William Marshall is chief investment officer of Hymans Robertson Investment Services