Enforcement of consumer duty critical to its success, say advisers

Handford Aitkenhead & Walker chartered financial planner Alasdair Walker, said: “What will matter in the longer term is whether there's any high profile impacts of this…are people actually being challenged? 

“Are their enforcement officers going out for firms where their fees aren't being justified?”

Head of retirement policy at AJ Bell, Tom Selby, agreed.

“It is hard to overstate the potential significance of the FCA’s consumer duty reforms for the entire retail financial services industry,” he said.

“However, for this to be achieved, the FCA will need to demonstrate a credible threat of enforcement against those firms who already flout its existing rules.”

There is a debate around value for money and what that represents, and how you measure itMike Barrett, Lang Cat

He added that the FCA will also need to keep a “close watch” on claims management companies, some of whom he said will inevitably attempt to use the new requirement to chase spurious claims against firms.

Consumer Duty

During a press briefing yesterday (July 26), the FCA said it will measure the success of the duty by monitoring Financial Ombudsman Service final decisions that are to do with fees, charges, or inappropriate products or services sales.

It will also measure customers' levels of trust and confidence through the financial lives survey, and will also look at data from sources including firm management information and complaints data.

FCA executive director of consumers and competition Sheldon Mills, said the regulator will require firms to demonstrate that they meet the standards of the duty when they apply for authorisations or permissions.

The City watchdog will look at this data, as well as that which already exists, such as complaints data.

Mills added that the regulator will use its "full range of powers" to tackle serious misconduct, which includes fines, removing permissions and securing redress for consumers.

"We will hold firms including senior managers and boards to account for delivering these outcomes to consumers," he said.

The FCA first set out plans for a new consumer duty in May last year, stating it was designed to create a higher level of consumer protection in retail financial services.

As part of the product and services outcome, an adviser will have an important role in accessing information necessary for supporting determinations of the relevant target market or consumers’ reasonable expectations.

This will be required for its own advice proposition and, potentially, other parties in the distribution chain as well.

The duty will be implemented on July 31 next year.

Pricing

One of the aims of the duty is to ensure advisers, funds and platforms communicate the justification for their fees to consumers.

The regulator will stop short of dictating what reasonable pricing industry participants should charge, however.

We are a way off seeing this translate into any immediate price reductionSam Turner, Altus

Walker said the FCA is walking a tightrope as to how far it goes in terms of enforcing specific pricing.

“You’ve this conflict where they’re [telling firms] to ensure their fees are appropriate and justified, but then also not a price regulator,” he said.

Lang Cat director Mike Barrett said it is important to look at the context around pricing.

Some funds in particular are more expensive than others, he explained, but some people say well this is a good fund and it is generating a good return so the value represented by the charges is acceptable to them.

“There is a debate around value for money and what that represents, and how you measure it,” he said.

This will most likely not translate into a direct downward pressure on fees, said Altus wealth director Sam Turner.

“We can expect increased scrutiny on how value is being delivered to customers, how it’s calculated and how it’s governed,” he said. 

“[But] I would suggest we are a way off seeing this translate into any immediate price reduction.”

sally.hickey@ft.com