How to avoid provider/IFA conflicts with FCA’s new consumer duty

The implication is that they will only be able to “up their game” for customers by accumulating and acting on greater knowledge of their financial situation, retirement ambitions, risks and vulnerabilities than they have access to today. 

However, by placing these new obligations on providers, platforms and financial advisers in equal measure, there is a real risk that advisers will feel threatened, particularly by providers’ closer proximity to their customers. Let us explore. 

In just a few months’ time, providers, platforms and advisory companies alike must evidence that they are protecting customers from foreseeable harm, shaping products to meet target market needs, ensuring customer understanding of products, and helping them meet their financial objectives. 

FCA’s four customer outcomes

The consumer duty requires all market participants to focus their efforts on improving outcomes for consumers in four key areas:

Outcome 1 — Consumer understanding: the FCA now expects products to provide clear and timely information to enable customers to make informed decisions about their finances, including debt levels, mortgages, pension savings and investments. With the increasing use of smartphones for financial decisions, digital interfaces must be responsive and smartphone-ready.

It is more important than ever to ensure customers have received and read the key product information such as its key features and charges. This information needs to be easily accessible, written in a way that is understandable, and it needs to be comparable with competitor offerings.

The FCA will be impressed by providers that know who is reading their communications. It is not enough for providers to know what proportion of their customers open their annual benefit statements. They now need to know their customers’ names, as well and how long they spent viewing these documents.

Providers, platforms and advisers must evidence that they are protecting customers from foreseeable harm, shaping products to meet target market needs, ensuring customer understanding of products, and helping them meet their financial objectives

Electronic delivery lends itself to this, and for repeat “offenders” (not opening anything), a company can switch to alternative channels for getting messages across, perhaps delivering them at the right time of day for that individual to pick it up and read it.

Providers can no longer just post out regulatorily required documentation and hope that somebody reads them. They will need to make sure they are continually improving these documents, stimulating feedback and interaction with customers. Compliance with consumer duty will inevitably stimulate more digital interaction between policyholders and policy providers.

Provider/IFA conflicts

However, for high net worth individuals, many of whom have independent financial advisers, will this mean that they will be receiving documentation and reminders from providers that are “out of sync” with adviser check-ins — possibly even contradicting IFA advice?

Perhaps an early indication of conflicts to come are direct-to-consumer platforms’ communication prompts, which may create conflicts as they often remind customers to top up Isas or self-invested personal pensions prior to tax year-end without considering their other pensions on different platforms or maxed-out Isa contributions.

To improve customer outcomes, the duty demands that providers collect and interpret more customer data and use it to make more automatic recommendations, which may disrupt or threaten the adviser-client relationship.

Outcome 2 — Products and services: companies should provide products that meet customers’ needs, not push unsuitable ones such as with the infamous payment protection insurance. However, the FCA notes that some consumers are still being pushed into high-risk investments, unaffordable credit and unsuitable debt products.

Once the provider knows more about their customers and has perhaps determined that a segment of their customer base is now holding too much in a sub-optimal product for them, the consumer duty encourages them to offer customers a more suitable product.

A provider or platform might want to create an automatic, cost-effective switching service to put this group in a better place. Like investment platforms offer a portfolio-rebalancing service, the switching service should require the minimum of intervention by the customer, save their expressed approval to go ahead.

Again, these interventions by the provider/platform may cut across changes recommended by the customer’s IFA at their next review, causing confusion and conflict.

Outcome 3 — Consumer support: when it comes to customer services, many of us have experienced long call-waiting times to speak to our insurers and reduced access to in-person services. There has been much talk about the FCA wanting to stamp out so-called “sludge practices”, which slow down the progress of insurance claim settlements, for example. 

The regulator will increasingly expect companies to provide ongoing customer support and consider various communication channels to find the best ways to engage. The watchdog also wants to see more competitive financial product markets with easy switching, cancelling and complaints handling processes. 

The FCA will be monitoring exit fees and transfer speeds to ensure they are reasonable if consumers do decide to move their money elsewhere. That means providers and advisers may need to focus on faster and cheaper transfers, all enabled by technology.

The FCA wants to see more competitive financial product markets with easy switching, cancelling and complaints handling processes

Outcome 4 — Price and value: finally, the regulator expects fair value for consumers. Companies must satisfy themselves that their prices offer a fair exchange for consumer benefits.

Clearly, the IFA is best placed to run whole-of-market product comparisons and share these with customers. But providers can also use digital tools to compare pricing and past performance with key competitors and offer charge reductions.

After all, price matching works for Tesco with low-cost retailers such as Aldi, and could work in the pensions and investment market too. Dunstan Thomas has sketched out a Pensions Value for Money Comparison Tool in its consumer duty white paper if you want to look more closely at enabling this.

Duty forces four major changes

The consumer duty marks the largest regulatory change of pension and investments since “treating customers fairly” came through back in 2006. What does the duty mean in terms of major cultural and technology-led changes?

1. The duty marks a cultural shift for platforms and providers, with increased focus on responding to customer needs and supporting advisers to deliver better outcomes.
2. The duty demands simpler and more targeted advice options, bridging the advice gap with more sophisticated digital journeys and optimising retirement savings outcomes.
3. The duty should accelerate data-rich digital integration: there is also clear opportunity for the whole market to apply open finance models to create data-rich digital customer journeys. Providers must collect accurate data, maintain permissions and use insights to serve the customer better. This will enable them to build innovative and relevant financial products more quickly.
4. The duty should also accelerate integrated, omni-channel communications and support services. Providers must support advisers as well as consumers and improve their support of them both to retain assets.

The consumer duty undoubtedly creates real risk that provider/adviser tensions will rise. However, application of modern technologies, combined with better mastery of customer data and judicious sharing of that data between adviser and providers, could help bridge any of these divides in the interests of collectively serving customers better and achieving more positive financial outcomes for them longer term. 

Adrian Boulding is director of retirement strategy at Dunstan Thomas