Partner Content by Royal London

Consumer Duty: delivering value in uncertain times

Ryan Medlock, Senior Investment Development Manager at Royal London, explores how advisers can deliver against the Consumer Duty alongside uncertain markets.

I’ve got disappointing news if you’re reading this in the hope that it’s in relation to a motivational podcast series! However, I do think it’s a rather apt title to describe where we are right now given the ongoing cost of living crisis, heightened market volatility and the relentless rate of regulatory change headlined by the Consumer Duty and its focus on being more proactive in the pursuit of good customer outcomes.

And I think this is where the pertinent challenge of today lies for advice firms; articulating the value attributed to these good outcomes. If I was an adviser, I think I’d be starting to feel a little miffed with the rallying cry to comply with the Consumer Duty. For most advice firms, telling you to put your clients at the centre of everything you do is preaching to the converted, but the key issue is how do you evidence that you put clients at the heart of your business? I think in that context, the Consumer Duty becomes more about the transparency of your decision making, rather than the need to implement additional processes.

The era of ‘spikeflation’

So far in 2023, we’ve moved from the stagflation phase of the business cycle (where growth is falling but inflation is still rising) into this new phase which is being coined ‘spikeflation’. This is categorised by periodic spikes in inflation caused by a range of structural drivers such as geopolitical risk and Government fiscal policy intervention.

A key question for advice firms is ‘how robust are your products, services and processes against this particular backdrop’?

Last autumn, we saw a lot of switching activity in the market, including advised clients who cashed out and are possibly still in cash now. Why did they move? Perhaps it’s a small fund or perhaps the client’s ultra-cautious. There may be a number of valid reasons, but in many cases it resulted from fear and emotion kicking in and going against the plan.

Guiding your clients through volatility

Getting your clients to stick to their long-term plan can be something which allows you to demonstrate ongoing value.

Let’s take 2020 as an example. It’s hard to think that the beginning of Covid global lockdowns and the era of panic buying toilet roll was over three years ago. But the macro conditions were very different then to what they are today. 2020 saw some of the wildest market volatility since the global financial crisis and was very much a disinflationary backdrop which benefited tech heavy global stocks. Government bonds also did well. The investments that didn’t fare as well were those inflation-hedging assets such as commodities and commercial property. We saw a lot of switching activity in 2020 off the back of these short-term market moves and not just clients switching into cash. There was evidence of clients being switched out of broadly diversified multi-asset solutions into more basic global equity and government bond multi-asset solutions.