The 31 October deadline is quickly approaching, and advisers can’t afford to delay preparations, writes Warren Vickers, managing director at Tenet Compliance Services.
The speculation, arguments, and calls for change are now over. The Financial Conduct Authority’s Consumer Duty undoubtedly marks a flagship intervention, one designed to significantly change the approach to retail customers.
The expected impact should not be underestimated. We’re not just talking about treating customers fairly with teeth – it’s a shift to an outcome-focused approach.
Many advisers will already be operating in line with the broad aims, but there’s still a real risk of complacency. Expectations are increasing and compliance with existing standards alone won’t be enough. It’s now or never for advisers to demonstrate how all aspects of their business support good client outcomes.
The regulator has heeded calls for a more reasonable implementation timeframe, but the deadline for completing the planning phase is still fast approaching. Firms need to have agreed their implementation plans by 31 October…. and the clock is ticking.
Advisers must be able to show their plans are robust, are properly documented, and make them available to the FCA on request. With these challenges in mind, what can advisers do to get ahead of the game and meet the deadline?
Mind the gap
Advisers need to take a holistic look at their business and where they are on the Consumer Duty journey so that they can benchmark against their new obligations. A gap analysis is a great first step.
Start with the basics – is there appropriate senior management engagement? Appointing a project lead to oversee implementation can help. This should be someone with a good working knowledge of all business activities and who can be an active voice on Consumer Duty considerations. This person can also act as a central liaison point for staff queries and correspondence with the regulator.
Elsewhere, has thought been given to the resource implications? The FCA estimates implementation costs for small firms could reach nearly £26,000 ($29,284, €29,811) and significantly more for larger firms – so clearly some funds will need to be set aside.
But this is just the groundwork. Next, advisers must consider their client proposition, and carry out their gap analysis in relation to achieving the Consumer Duty’s required outcomes.
Products and services
The Consumer Duty calls on advisers to dot their i’s and cross their t’s, and I really do see this as a fresh and positive opportunity for advisers to develop professionally. Advisers should ask themselves if they have reviewed their advice process in light of Consumer Duty and how well they know their target markets.
Particularly, have the needs of different groups, like those with vulnerability characteristics, been considered?
Treating all clients as potentially vulnerable could be born from good intentions, but such a blanket approach is unlikely to spot the many varied drivers of vulnerability.
Regarding distribution, key considerations include advisers checking whether they’re obtaining provider information on target markets, and if their advice processes fit with intended distribution strategies.
Value for money
Advisers will also need to more clearly justify and evidence their fees and why these represent fair value, and this means completing value assessments.
This again is a fantastic opportunity to demonstrate the relationship between the price paid by the client and the benefits of the service.
Advisers also need to look at the overall value of the distribution chain.
Switching to a two-year fixed mortgage rate to save £400 might look like a good outcome on paper, but it’s self-defeating if the costs and charges racked up are even higher.
Consumer understanding and support
This is about helping clients make informed decisions. Information still needs to be clear, fair, and not misleading – but it also needs to go beyond this and actively support customer understanding.
Questions to think about include when were communication standards last reviewed, and which documents will need to be revisited.
The Consumer Duty also seeks to stop clients encountering unreasonable barriers that prevent them from achieving their goals.
This means considering clients’ support needs at each stage of the advice process and mapping how these needs are being met.
One lesson from the pandemic is that this should include thinking about times of exceptional stress – like the current energy crisis – and considering which clients may need an extra helping hand.
The clock is ticking…
A structured, step-by-step approach is key to managing regulatory change, but there’s a real danger of advisers letting the FCA’s deadline slip by.
A gap analysis is a great first step, providing a springboard for advisers to fill in any gaps with a harms assessment and map out their implementation plans before the end of the month.
With the deadline quickly approaching, advisers simply can’t afford to delay and must get their plans in place so they can go forward with peace of mind.
This article was written for International Adviser by Warren Vickers, managing director at Tenet Compliance Services.