In Focus: Profitable advice business  

Advisers will need to work out value of advice, says FCA

Advisers will need to work out value of advice, says FCA

The Financial Conduct Authority’s executive director of consumers and competition Sheldon Mills has said the onus will be on advisers to measure value for money when it comes to the new consumer duty.

Speaking at a press briefing yesterday (July 26), Mills said an assessment is needed of the fair value exchange when it comes to fees and charges for advisers.

When it comes to incorporating the time and cost of the adviser into the assessment, Mills said: “What those advisers will need to do is work out what the cost of providing that service is over the frame of that contract and then what is being provided and the value of it to the customer. 

“For all segments of the industry, it will be important they find a way to mechanise that fair value construct of looking at what the cost is, and what is the value to consumers over time.”

He said it is possible to work that through in charging base multiple models where advisers have charges which continue over a period of time but they need to look through what the utility of that is for the customer.

In its policy statement published today (July 27), the FCA said it wants “all consumers to receive fair value”. 

“Value is about more than just price, and we want firms to assess their products and services in the round to ensure there is a reasonable relationship between the price paid for a product or service and the overall benefit a consumer receives from it,” it wrote.

The FCA said in response to the consultation, many firms asked if the regulator could be clearer on how it expects them to carry out value assessments and asked if they could provide more detail on how it intends to supervise against this outcome, and further examples of good and poor practice in different sectors. 

A few firms asked for further guidance on how they should consider a product’s non‑monetary costs and benefits and others asked for further clarity about how this outcome would affect differential pricing practices or cross‑subsidies between products. 

The FCA said: “The focus of the price and value rules is to ensure there is a reasonable relationship between the price a consumer pays for a product or service and the benefits they receive from it. 

“We are clear in our guidance that a product or service that meets all of the other elements of the duty (for example, which is designed to meet the needs of its target market, is transparently sold, and for which consumers are properly supported) is generally much more likely to offer fair value.

“This is both because of the benefits customers get and because they have the information they need about the benefits and limitations of the product or service they are buying, and the ability to pick something else if they prefer.”


But the FCA stopped short of banning exit charges currently payable by consumers.