'Consumer duty will change how advisers work and think'

Quilter, one of the biggest advice businesses in the UK, says it has a "good idea" of what the rules will mean and has started to prepare for their implementation next April.

The Financial Conduct Authority consulted on the duty until February and is due to publish its final rules in late July, alongside its expectations and guidance for businesses on how to meet them.

Paul Young, head of business consultancy at Quilter Financial Planning, chats to FTAdviser In Focus about how Quilter is preparing for the new rules and the difficulties advisers may face.

We all have biases that can influence the questions we ask or the style of medium they are delivered through.

FTA: How is Quilter preparing for the consumer duty?

PY: Technically the fine detail of the FCA’s consumer duty paper is still informed guesswork until final publication – that said, we have a good idea of the key content and issues due to the consultation papers.

As a large group with a number of different businesses each one will be preparing in a different way but from an advice perspective, we have already started a gap analysis against the high-level topics, especially on the four outcomes: communications; products and services; customer service; and price and value.

FTA: What are the most difficult processes to implement?

PY: One of the difficulties we are seeing is how to test, analyse and monitor process and outcomes from the consumer’s point of view while trying to be objective.

We started preparing in earnest since the first draft was released in May last year.

The challenge is how to capture the client's view without influencing it unconsciously, as we all have biases that can influence the questions we ask or the style of medium they are delivered through.

FTA: When did you start preparing and what would you say to advisers who have so far put it off?

PY: You could argue that we have been preparing for something like this since the Retail Distribution Review.

Similarly, we introduced our adviser delta formula in 2019, which focused on defining, articulating and demonstrating how much value advice brought to clients.

We started preparing in earnest since the first draft was released in May last year.

One of the key focus areas of the consumer duty paper looks set to be about helping put ‘customers in a position where they can make effective decisions.’

Behavioural economics plays a huge part in ensuring customers are given the right information and tools to make a decision and our focused behavioural consultancy team has been working with businesses and advisers on this.

FTA: What are the costliest/most difficult changes that many advice businesses might face?

PY: The direct costs to businesses may include those relating to understanding the consumer duty and then performing a gap analysis on their policies and processes.

Using this information businesses will then need to make relevant adjustments through change projects and subsequently train staff on the new requirements.

There may be indirect costs for businesses resulting from increased legal uncertainty and loss of profits due to changes to products and prices.

There may also be IT costs for any system changes. And then there are the costs associated with monitoring and testing consumer outcomes.

The ongoing costs will be the need to test communications and then adjusting them to make them compliant.

There may be the need to hire more customer service staff and ensuring that they are monitored and servicing clients compliantly.

There may also be indirect costs for businesses resulting from increased legal uncertainty and loss of profits due to changes to products and prices.

FTA: How do you think the new rules will change your advice service? Any changes to ongoing advice?

PY: I think across the board financial advice businesses will need to get better at articulating the value that we provide to new and existing clients.

Similarly, for lower revenue clients, it may mean that advisers need to be clearer about what ongoing service really means in terms of style of delivery and frequency of in-depth interaction.

FTA: Would you say a comparison with the RDR in terms of the consumer duty's impact on advisers is fair?

PY: Yes, this piece of regulation is likely to be as impactful as the RDR.

It will change the way advisers need to work and think. RDR was about moving from an industry to a profession.

Consumer duty is about making sure the profession delivers sustainable value to clients, advisers, and business owners.

FTA: How will it change the adviser market?

PY: The main themes of the new regulation are pricing and fair value, across all advice sectors, not just investments like the RDR.

It is key that the profession as a whole gets better at defining value, articulating it, and demonstrating it.

Just like Covid accelerated the use of technology, regulation like this will keep that trend going.

It will also mean that advisers need to at the very least grasp the basics of the science of value and behavioural economics.

carmen.reichman@ft.com