Consumer duty  

Consumer duty ‘to fall hardest’ on life and pension providers

Consumer duty ‘to fall hardest’ on life and pension providers
"We are clearly moving away from a ‘build it and they will come’ model"

Life and pension product providers will struggle more than most with the Financial Conduct Authority’s incoming consumer duty, largely because it will require them to manage legacy books of business which have not been touched in years.

Under the consumer duty, by July 31, 2024, providers will need to have a decent understanding of all their customers - including those inherited from other firms, otherwise known as ‘orphan customers’.

This year, providers only need to do this for active books of business - ie, all non-legacy customers - which they already have more points of contact with.

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In a report published yesterday (January 23), Curtis Banks’ fintech business Dunstan Thomas said the largest areas of challenge in the City regulator’s consumer duty appear “to fall hardest on life and pensions product providers”.

It continued: “By July 31, 2024 [the consumer duty] must also be applied retrospectively to legacy ‘closed book’ product portfolios.

“So drawing in orphan customers that may have had little or no communication from their providers in many years.”

Providers must ensure:

  • Products and services are designed to meet the needs of a specific group of customers and are only sold to that target group.
  • They provide two-way communications to enable consumers to make timely and properly informed decisions on what they buy.
  • They provide sufficient education and support to customers on the benefits of their pensions and remove any hindrances to this.

In the past, providers have designed their products to be distributed by the advisory world - rather than to be bought directly by consumers.

The intermediary firms then determine which of the manufacturers’ products are suitable for which of their clients. 

But with the new consumer duty, product manufacturers need to pre-identity a target group for every product they create.

“This shift definitely places a heavier demand on product providers and platforms to get closer to their end customers,” the report surmised.

“We are clearly moving away from a ‘build it and they will come’ model, to one in which we discover what the customer wants first and build it in response to evidence of demand.”

The report placed an emphasis on data-filled dashboards to help staff weigh up price and fair value, compare products, gather feedback for future products, and keep tabs on customers’ financial health.

A Moneyhub-commissioned Opinium market research study, completed late last summer, found nearly a quarter (23 per cent) of providers anticipate spending over £5mn on technology to ensure duty compliance in the run up to the implementation deadlines in July this year and next year.

“It seems that for many providers, consumer duty compliance will be a catalyst for some seismic business changes extending to digital transformation,” the report concluded.

“To date, only IFAs serving the wealthiest 10 per cent of the UK population are able to gather a holistic 360 degree financial view of the customer. 

“Increasingly, it will be possible for providers to gather a much fuller picture of their customers via automated fact finds and digital onboarding journeys.”