The July 2023 deadline for the Financial Conduct Authority’s (FCA) Consumer Duty regulation looms ever closer, causing concern among decision-makers at investment, wealth and pension firms to grow.
According to research from fintech firm Moneyhub, 10% of senior decision -makers (chief executives, chairmen and directors) at investment firms, wealth managers and pension providers confessed to not knowing much about the upcoming regulations.
Just over two-thirds (69%) of investment, wealth and pension firms said that the regulation would have a significant impact on their way of doing business. However, concerningly, 51% did not have plans in place to become compliant ahead of the original April 2023 deadline set by the FCA.
While the April deadline was pushed back to July in order to give firms more time to implement their plans to become compliant, there is still a concern that many will not be ready. Especially so, given the number without active plans in place, despite the FCA asking for boards to approve plans by October 2022.
The survey also found investment, wealth and pension firms believe that technology will play a significant role in helping them become compliant. Half (51%) said they’d be investing in technology to develop and deliver more personalised and targeted communications, while 49% said they’d be investing in technology to access customer data and insights.
Opportunity to transform
Samantha Seaton, chief executive of Moneyhub, said: “The FCA has said that Consumer Duty is a significant shift in what it expects of firms. The Consumer Duty will test just how customer focused businesses truly are, however many firms are not prepared for the amount of data required to be able to design and distribute the most suitable products and services for customers and to prove that they are doing so.
“Without fully understanding the financial characteristics and objectives of their customers, firms could be at risk of recommending the wrong investments and products or failing to respond to changes in customers’ circumstances which might require them to offer alternative products and services to avoid foreseeable harm as a customers’ financial world evolves.
“Customer engagement is a key issue and also an opportunity for many firms, particularly pensions firms, who have historically struggled to engage busy or disinterested consumers with what are often complicated products.
“Offering personalised communications and relevant nudges will improve engagement and long-term savings, spending and investment habits can be transformed. This not only brings benefits to the consumer but the business itself. It is my hope that firms view Consumer Duty as a real opportunity to transform their business for the better.”
Elsewhere, consultancy firm Altus recently published a Parmenion-backed white paper called ‘Getting value from your platform: Thinking outside the tick box‘, which explores the future of platforms.
The paper looks at the potential impacts of Consumer Duty on platform use and selection – including the drivers pushing advice firms to consider running their own platforms.
It also assesses how the FCA Consumer Duty rules focus on service and support could reshape the platform market and how advice firms and platforms will have to work more closely together on due diligence and align under a mutual understanding of the outcomes they jointly deliver.
Parmenion chief executive Martin Jennings said: “The white paper considers the level of due diligence advisers should undertake on their platform partner and asks why an advice firm might consider operating their own platform, looking at some of the challenges and offering views on how platforms might add more value in future.
“As Consumer Duty looks set to be the biggest shakeup of financial services since the Retail Distribution Review (RDR), we are expecting big changes in our sector. We believe there is no progress without debate, so we would encourage our financial services colleagues to share their thoughts on our report with us as we look to the future.”
Kevin Okell, managing director at Altus, said: “It’s easy to forget just how integral investment platforms are to professional, independent advice. With the relationship between platform and adviser set to become even closer under Consumer Duty, it seems clear that due diligence is about to be taken to a whole new level.”