Long ReadDec 14 2022

How to ensure you comply with the consumer duty

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How to ensure you comply with the consumer duty
Photo: Dominika Roseclay

It goes without saying that when it comes to providing investment advice, every financial adviser is already trying to deliver 'good outcomes for clients'. Given that is the key principle of the consumer duty, many may be thinking that they do not have anything to worry about. 

As with most regulation, however, it might not be quite that simple.

Recently the Financial Conduct Authority has been quite clear that the consumer duty provides a “new lens” through which to look at your investment proposition.

The regulator is clearly going to want to see evidence for the steps you have taken

The consumer duty regulation is clear, and advisers will need to understand exactly what that means for their propositions and how they can ensure that they meet the new requirements.  

The good news is there is practical guidance advisers can lean on to ensure that you meet the new requirements. The consumer duty has been built around three “cross-cutting rules” and four outcomes.

So, one approach you could take might be to consider each of the four outcomes and how you might meet them in relation to your investment proposition.

Outcome 1: The governance of products and services

The aim of this outcome is for you to provide evidence that your investment proposition is appropriate for your target market. You may want to consider these areas:

  • Build a target market statement if you have not already done so, taking into account factors like age, investment term, objectives or level of financial sophistication.
  • You may have more than one target market – for example, if you provide advice to families, you may find different generations have different needs and preferences. In this case, consider a statement for each target market. 
  • Speak to the investment manager(s) you use about their own target market information – that is, who their fund(s) or portfolio have been designed for. This is clearly more complex if you create portfolios of funds, as opposed to a single outsourced solution, but nonetheless it should be addressed. 
  • Ensure the investment managers’ target market matches your own.
  • Review your investment proposition regularly to ensure it remains appropriate.

Outcome 2: Price and value

This outcome requires you to demonstrate that investments represent good value. In considering this, focus on what the client is paying for. A cheap but poorly diversified income solution is equally likely to fail the value test as a more expensive active solution.