Consumer dutyMay 15 2023

Majority of advisers say consumer duty will increase business costs

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Majority of advisers say consumer duty will increase business costs
Pexels/Alaur Rahman

Almost all (91.7 per cent) advisers said the Financial Conduct Authority’s consumer duty will increase the cost of running their businesses, according to research by Panacea Advisers.

In a survey carried out between late February and early April 2023, Panacea asked its adviser community about the impact of the FCA’s consumer duty and whether they were prepared for.

Some 2.8 per cent of respondents did not think the consumer duty would impact their business costs while 5.6 per cent said they were unsure. 

The survey, which received 136 responses, revealed three quarters of advisers (75 per cent) said support from the FCA around the consumer duty has not been helpful or easy to understand.

Only 5.6 per cent said the FCA support has been helpful, while 19.4 per cent said they were unsure.

Some of the adviser comments included: “Much depends on what they retrospectively choose to judge us on. Vague as always, they should be more prescriptive.”

Another said: “Too much jargon - not enough clear examples of what they think 'it' looks like. To start sending emails that 'clarify' is worrying in that something should be understandable without the need to clarify.”

Elsewhere, more than half of advisers (63.9 per cent) said the increase in costs would be passed on to clients.

Only 16.7 per cent said costs would not be passed on, while 16.7 per cent said they were unsure.

One adviser said: “One must do so. There has been so much extra red tape since RDR.”

Another said: “Any increases will be proportionate and reluctantly charged but we have to be able to pay our staff and overheads.”

While another added: “We have to pass this on, it's likely to be in increased initial fees but will also mean we are less likely to discount ongoing fees.”

Another question asked whether advisers have, or will be, reviewing specific areas of the business.

When asked if they had made the appropriate changes to the business, 50 per cent said they were not quite there and still had some work to do and 19.4 per cent said there is still a lot to do.

A quarter (25 per cent) said they were fully compliant while 2.8 per cent said ‘what is consumer duty?’.

Derek Bradley, founder and chief executive of Panacea Adviser, said: “Whilst the concept of consumer duty is highly laudable, the world of financial services has been plagued by the failure to use plain English, which I think is almost always at the core of some considerable consumer detriment.

“In keeping with post millennium modern thinking of TCF, which cost a fortune to design and implement, this has now, seemingly, been re-badged and it is to be known, going forward as consumer duty.” 

Bradley questioned whether this was yet another attempt to get the delivery of financial advice and the associated products much simpler, or make it more complicated.

“During my 40 years in the industry, I have seen regulators go out of their way to make life more complicated for consumers and regulated firms, most often to justify an existence. 

“And when they failed, another regulator was born, often with the same staff, to try getting it right all over again and failing, a form of perpetual motion? 

“Over the years we have seen rules replaced by principles then discarded. Principles opened the door for retrospective regulation opportunities undreamt of. 

“This sounds for many small firms like more work they just do not need, more costs in working it all out or paying somebody else to work it out for them.”

Advisers were also asked whether they think that the consumer duty is something their clients will view in a positive light and only 8.3 per cent said yes, while 61.1 per cent said no and 30.6 per cent were unsure.

One adviser said: “Clients have no idea what any of the regulators impose on us, they either trust us or they don't and unfortunately still trust con men, the FCA regulations have never done anything to help anyone differentiate between the unscrupulous and the trustworthy.”

Another said: “Our clients won't see any change, except we have less time to look after them, our costs have increased and we are less sure of our will to continue in the business.”

They also overwhelmingly (91.7 per cent) said there will not be a reduction in firm PI costs as a result of consumer duty, with 83.3 per cent stating the duty is nothing more than treating customers fairly getting a makeover.

An FCA spokesperson said: “The consumer duty aims at simplicity: are financial firms delivering a good outcome for their customers? 

“The duty requires firms to be sure that they are creating useful products, selling them honestly, pricing them fairly and providing decent customer service.”

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