Industry must standardise transfer process or risk consumer duty failures

While the onboarding of clients and the reporting stages of the advice process can now operate digitally, the filling in the advice sandwich, the process of actually implementing a financial plan, can be more problematic. 

Substantial sectors of the market, such as those thinking about retirement, may be approaching an adviser for the first time armed with multiple products – research suggests typically between five and 15 products to be assessed and, if appropriate, transferred.

Given the multiple moving parts, you could argue that this is the sort of place the regulator should be stepping in and setting standards.

For each one the adviser will need letters of authority and agency transfer forms to take control of the plans. And this is where it all starts to go wrong. 

Every provider has a different process ranging from those who accept DocuSign to those who want original copies, or, believe it or not, those who require a faxed copy – millennials, you may wish to ask that grizzled adviser in the corner what a fax is.

Disastrous delays

It generally takes several months, and in worst-case scenarios more than six months. I leave to your imagination the issues that can be going on in a client’s world while their adviser is waiting to take control of the investments.  

With clear consumer detriment going on there is work underway to create industry standards, but it still has some way to go. Given the multiple moving parts, you could argue that this is the sort of place the regulator should be stepping in and setting standards.

This issue falls firmly and explicitly within the consumer support outcome.

The Financial Conduct Authority had a good look around the transfer process as part of its Investment Platforms Market Study in 2019 and was not overly impressed with what it found, raising concerns that consumers faced significant barriers to switching to firms better able to meet their needs or offer better value for money. 

At the time it concluded that the industry’s own initiatives were likely to prove the most timely, proportionate and cost effective to improve outcomes for consumers – while making a point of reminding everyone that they had to pay due regard to the FCA Principles, ensure they treat customers fairly and act in the best interests of their clients.

It also committed to reviewing the situation this year to see how things are going, and the Fragmented World research suggests the answer will be ‘not well’.

Regulatory blunder

We are now (or will very shortly be) in the world of the new consumer duty, and this issue falls firmly and explicitly within the consumer support outcome. The regulator expects firms to make it at least as easy to switch products, leave their service or make a change as it was to buy the product or service in the first place. 

One of the examples of poor practice in the final guidance is precisely the scenario of delays caused by an investment platform dragging its heels, following an instruction to switch a client’s assets, on the grounds that there is no commercial benefit in the customer making this switch. 

Common standards that help the industry to integrate and automate the onboarding process are urgently needed.

The sort of evidence of good consumer outcomes required to meet the duty includes root cause analysis of complaints and satisfaction surveys, and a delay of six months because you have yet to receive evidence that a letter of authority has been obtained is likely to be the reddest of red flags on your shiny new consumer duty dashboard. 

The sting in the tail of the consumer duty proposals published in July is that the FCA has, for now, decided not to move forward on a private right of action in relation to the duty, but has been clear that it could revise its position in future.

If it were to conclude that a private right of action was needed, not only could a firm have the regulator on its doorstep, it could find itself in court with a customer (or a claims management company on a customer’s behalf) for delays in processing and the consequent harm. 

There is, therefore, a real incentive for the industry to work together to sort this out sooner rather than later, building on the step change in technology and modernisation of processes that have been achieved over the past few years as a result in the leaps forward in fintech and working through the pandemic.

Common standards that help the industry to integrate and automate the onboarding process are urgently needed. Even if they put the manufacturers of fax machines out of business.

Alison Gay is senior public affairs consultant at the Lang Cat