The Financial Conduct Authority (FCA) consultation on the proposed consumer duty closed on 15 February 2022.
Firms were given a chance to share their views on the plan, which has been previously labelled as a “fundamental shift” on how companies deal with products and services.
While the regulator is gearing up to make sure the industry’s offerings are right for clients, what do financial advisers expect from it?
For quite some time, advisers have lamented a lack of clear-cut boundaries between what constitutes financial advice and guidance.
Investment platform AJ Bell argues that the regulator has the perfect chance to revisit the advice/guidance boundary in its updated Consumer Duty.
Tom Selby, head of retirement policy at AJ Bell, said that the lack of clarity is constraining firms’ “ability to offer help”, as they often have “very limited appetite for intentionally or unintentionally breaching perimeter guidance, which stifles innovation in the provision of support to customers”.
James Moorhouse, content manager for policy and public affairs at the Chartered Insurance Institute (CII), told International Adviser: “In the last decade, financial advice professionals have progressed from simply recommending and facilitating contracts to giving a wide range of advice, which may or may not lead to the purchase of a product.
“By offering advice on how a product or service works, rather than just explaining what is available, financial advice professionals can provide better customer service. We would welcome a change in the use of language in the rules and guidance around the consumer duty to reflect this.”
But Matt Burton, chief risk officer at Quilter, told IA he does not foresee a radical reshape of financial advice in the FCA’s push, but it has the potential to offer more clarity.
He continued: “Some have argued that the consumer duty presents an opportunity to reassess the current ‘advice/guidance boundary’, given the emphasis on assessing firms based on the customer outcome.
“On the whole, the duty sets out an excellent initiative that will help ensure customers are given the tools they need to make decisions that are crucial to their financial wellbeing, but it is a step too far to read that it will reshape advice and guidance as it currently stands.
“That said, it would be useful to see further progress on the ability for firms to provide more personalised forms of guidance given the FCA’s own advice market evaluation found that it could improve the market. It would also prompt more people to take full advice at critical points in their lives.
“It’s important for the financial wellbeing of the nation that the regulator, government and industry continue to work together to ensure we can deliver the financial support people need.
“While we are supportive of the new measures set out by the consumer duty paper, the timeline for the implementation is challenging. To help ensure the smooth adoption of the regulations it may be better to extend the timetable by around eight months or consider a phased implementation. This is arguably the biggest change to regulation since the Retail Distribution Review in 2013 and firms need to have time to digest and implement the changes.”
The FCA intends to provide confirmation of the measures in July 2022, with full implementation expected by the end of April 2023.
Burton added: “There is also the potential for a layering of old and new regulations on top of one another which could cause confusion. It would be good to get further clarity about how existing and new regulations interact, particularly in relation to treating customers fairly principles.”
Proposals ‘too subjective’
Liz Field, chief executive of Pimfa, highlighted this issue as she said that, while the watchdog has provided some clarifications, there is scope for greater clarity to make sure firms are aware of what is expected of them going forward.
“In our ongoing discussions with the FCA we have consistently asked for further clarity on the proposals that they have put forward,” she added. “To their credit, this updated package of measures, in combination with the draft guidance produced, is clearer on the FCA’s expectations of firms.
“However, there is still scope for further clarity, and we have asked for updated guidance on a number of issues, as well as explicit statements of the expectations of firms. Throughout this process we have been clear, our concerns around the consumer duty are less about the ability of firms to comply with it on an ongoing basis and more about the broader implementation challenge associated with, and the inherent subjectivity of, the proposals.
“We do not believe a nine-month implementation period is sufficient for firms to ensure the systems and processes they have in place are sufficient both to measure consumer outcomes and provide the level of reporting distributors will now have to send upstream to manufacturers.
“This is an industry which has undergone an enormous amount of regulatory change recently which, in combination with the ongoing impact of covid-19, means resources are already stretched. We believe a two-year implementation period would be more suitable and are aware of other industries with even bigger implementation challenges who agree.
“Meanwhile, the inherent subjectivity of the proposals does remain a concern especially with respect to the application of the duty by the Financial Ombudsman Service (Fos). We already have long-standing concerns about the lack of alignment between the Fos handbook and that of the FCA. While we think it is right that the FCA have set their expectations to the Fos, we draw little comfort from this given it has no obligation to act upon these expectations.
“Ultimately, it is our uncertainty about how Fos will interpret the duty and, in particular what is reasonable, which will drive whether or not the implementation of the duty will ‘raise the bar for financial services’ more generally or simply open the floodgates for claims against an industry, which continues to do its best to provide good outcomes for consumers.”