Recently someone told me that in the 1990s, when they worked for an investment firm, the senior team used to joke that the compliance department was the ‘anti-business’ team. Kudos to that firm for employing a compliance team that clearly had teeth even back then.
Since those days, the regulator has unleashed a stream of rules aimed at ensuring customers get a fair deal (I bet those directors wouldn’t be laughing now).
The latest to send ripples across the industry is the consumer duty. This aim is to improve the fairness of any dealings that consumers have with financial organisations.
Fairness is the holy grail for the FCA and, for an industry that is plagued by bad press for any hint of bad practice, it really should be the main focus for all reputable financial services firms too.
FCA 2021 Fair Value review
Between July 2020 and May 2021 the FCA reviewed 18 asset management firms of varying sizes and with different business models. They evaluated their findings against requirements and guidance in the FCA Handbook.
They found that most of the firms had not implemented value assessments necessary to comply with their rules. Many had not implemented assessments meeting the minimum consideration requirements and several practices fell short of their expectations.
MPS
In early May 2023, I decided to do my own research into how firms were shaping up as we approach the introduction of the consumer duty. What I found would not gladden the heart of the FCA. Here’s a list of what I discovered.
Among the 11 fair value assessments I reviewed I found:
- The length of the assessments varies from two to 30 pages
- Some fair value assessments were quite difficult to track down. Two I found impossible to get hold of at all.
- All firms said their models offered fair value except one: Schroders gave an 'amber' rating to three models with a clear explanation of why.
- Schroders' was among the most extensive, assessing value to customers across a number of metrics for each model portfolio. Ratings are provided for performance, service and cost and a separate report was published for each range. Most other firms simply said they assessed their portfolios and deemed them fair without showing their work.
- Just three firms referenced external data for cost comparisons – two of these used NextWealth data.
- Five of 11 presented fees (model management and OCF) while others referenced their fees and charges but did not list them in the assessment.
- Many firms published their target market assessment as part of the fair value assessment.
The reality though is that financial advisers are unlikely to put much stock in any shiny new fair value assessment. Advisers have always carried out their own assessments about the value of products and services they recommend to clients. They have to - it’s their neck on the line if something goes wrong.
This work takes time and resources but fair value assessments won’t change the fact that financial advice firms research and recommend products based on their suitability (price, performance and service) to individual clients.
An adviser I spoke to recently summed it up, saying: "Fair value assessment won’t be a determining factor for recommending a DFM to a client. The main factors must remain a strong proposition at a good price for the client."
However, if investment firms up their game and actually provide the sort of information that advisers need and can trust, think of the time that could be freed up for them to do more business. Surely that’s a win-win scenario.
Heather Hopkins is founder and managing director of NextWealth
