Paradigm have outlined a number of key points for firms to consider when preparing for the price and value outcome of the consumer duty.
According to the firm, the price and value outcome appears to be the biggest challenge many advisers are facing in their preparation for the consumer duty.
In the latest video in the firm’s consumer duty series, released last week (February 17), Paradigm’s head of consultancy, Graeme Stewart was joined by the firm’s director of mortgages, Richard Howes, and director of protection, Mike Allison, to discuss this outcome.
As part of the price and value outcome, firms need to ensure that the price a customer pays for a product is reasonable compared to the overall benefits that the customer gets from the product.
When addressing this outcome of the consumer duty, the Financial Conduct Authority has suggested that firms ask themselves three key questions.
- Is it satisfied that it is considering all the relevant factors and available data as part of its fair value assessments? Has it gathered relevant information from other firms in the distribution chain?
- Can it demonstrate that its products and services are fair value for different groups of consumers, including those in vulnerable circumstances or with protected characteristics?
- Is it charging different prices to separate groups of consumers for the same product or service, and if so is it satisfied that the pricing is fair for each group?
Addressing the question of different pricing for different groups, Paradigm’s Allison said the key driver is that the charge should be driven by the cost to deliver the advice.
Howes gave the example that in the case of a mortgage, two consumers may require to borrow the same amount, but where one is taking an offset mortgage, for example, that consumer would require more hands on advice and thus the charging structure would be different.
“The point is, there is no cross-subsidies, people pay for the advice they get and the cost is driven by the cost to provide that advice,” Allison said.
In relation to the data firms use to monitor the fair value of its products and services, Allison said it will depend on a firm’s size as to how regularly they do this.
“Some firms might want to do it quarterly or half yearly, what actions they take will be documented in the senior management meetings and the consumer duty report which obviously has to be produced annually,” Allison said.
In terms of the information collected, Allison noted that again this will depend on a firm’s resources but said high persistency will generally indicate a good outcome, as will low complaints.
“Feedback from staff, manufacturers and of course customers can all indicate good outcomes are being delivered and should all be part of [a firm’s] annual report on the implementation of consumer duty,” Allison added.
In terms of feedback from manufacturers, Howes noted that this could take the form of their reporting on product mix and things like average case size, but said firms will have to wait and see what feedback manufacturers are going to deliver.
“The feedback from customers is a really good one,” Howes said.
“Not just if they say thank you, but if they refer their friends and family, if they come back for more advice and are seen as a repeat customer.
“I think firms will also want to look at where advisers go off-piece and charge more or less than the standard,” Howes added.
In addition to this, Stewart said firms can generate a lot of information from file reviews.
“It’s really essential that firms’ focus on that key area particularly in light of the recent ‘Dear CEO’ letter,” Stewart said.
Earlier this month, in a Dear CEO letter the Financial Conduct Authority said asset managers are facing changing consumer needs due to the rising cost of living, volatile markets and a challenging economic environment, which all make it more difficult for companies to deliver good outcomes to customers.
The regulator said ineffectual governance was the root cause of some asset managers failing to mitigate material risks or progress towards a better outcome for their clients.
Elsewhere in its video, Paradigm outlined what firms should be doing now to prepare for the end of the implementation period of the consumer duty, which ends July 31 when the reporting stage begins.
It noted that firms should have all of their charging structures to hand for all elements of its business.
The Financial Conduct Authority has also recently provided greater clarity on what it expects from firms in relation to the support outcome, the products and services outcome and the consumer understanding outcome.
Firms will need to comply with the new consumer duty from July 2023.
jane.matthews@ft.com
