Opinion  

FCA's new consumer duty is an opportunity to better your business

Ben Goss

Ben Goss
  1. Layered charging. The paper raises concerns that it is harder for consumers to assess price if there is layering of charges along the distribution chain. It points in particular to the asset allocation/fund selection layer where separate fees can be charged by a discretionary manager, “which might together result in a higher overall cost that does not represent fair value”.
  2. One-size-fits-all charging models, where the size of the portfolio on a percentage fee means that the consumer may pay substantially larger fees, “even though the costs of providing the service and the benefits consumers receive may be very similar”.
  3. Ensuring that the price charged is reasonably relative to the performance benefits received and the challenge of ensuring that prospective clients are able to reasonably “assess these potential benefits before purchase”.

In simple terms: more will be expected from businesses in terms of consumer protection, while key elements of many companies’ commercial models are likely to come under even greater scrutiny in terms of the value they deliver. Additional pressure will be placed on the stack of fees charged to clients and each component will need to be further justified, along with the net return clients receive for the risk they take. Clients in drawdown where the majority of wealth is managed, taking relatively lower levels of risk and who are being charged a standard adviser fee for annual reviews, platform and discretionary charges will be under the microscope.

To meet these potential new, tougher standards with services that demonstrably deliver value for which consumers are happy to pay, businesses will need to ensure they are delivering personalised services but with significantly increased efficiency in order to handle margin pressure. This is clearly the FCA’s view too.

In its FAMR review from last December, the FCA wrote: “We feel there is significant scope for technology to further assist firms when providing advice to consumers and help reduce the costs involved, making it more affordable.” It sees financial planning technology as a key part of the answer to reducing costs and creating more space for value, stating: “One firm told us that, used properly, technology could reduce the preparation time for an ongoing review from six hours to 45 minutes.”

Another provided evidence to the FCA that advisers fully adopting technology “took in twice as much revenue”. The use of asset allocation tools to help advisers recommend suitable portfolios tailored to clients’ needs, and report-writing software to address the cost of suitability reports, are also seen as solutions to the productivity challenge.

While the FCA, in line with regulators around the world, are continuing to seek higher consumer protection standards and value for money, they are also setting out their support for financial planning technology to support profitable, sustainable business models.

From a company's perspective, whatever form the new consumer duty takes, this should be seen as more of an opportunity than a threat.

Ben Goss is chief executive of Dynamic Planner