Regulation  

How the consumer duty will affect advisers' day-to-day operations

  • Describe the impact of the FCA's consumer duty
  • Explain what it will mean in day-to-day practice of financial advisers
  • Identify the use of management information tools
CPD
Approx.30min

Although the application of the consumer duty to particular firms is, in general, influenced by an overarching proportionality principle, the updated guidance should be considered by advisers in full and then applied in light of a firm’s particular size, client base and the types of products and services provided to retail customers.

Clearly, firms with customers who have characteristics of vulnerability or protected characteristics will need to pay close attention to the ways in which information is obtained and processed. This is important, among other things, to ensure compliance with wider legal obligations, for example under data privacy and equalities legislation.

Again, firms should challenge themselves to consider the most appropriate data points for the services provided and the most appropriate method of obtaining that information against the backdrop of their customer base. Different approaches may be needed for different categories of customer.

It is also worth bearing in mind one overarching theme of the consumer duty, in terms of cultural change.

The FCA expects firms to deploy the strategies, technologies and systems in use across the business (for example, in product development or sales) in order to meet the requirements of the duty.

In this context, firms with sophisticated management information strategies and capabilities, which are used to generate customer acquisition, will be expected to deploy these tools and this experience towards monitoring outcomes, where appropriate.

Developing processes to meet the consumer understanding outcome

The new ‘consumer understanding outcome’ represents a reorientation of regulatory requirements around customer communications.

This is not simply an incremental development to principle seven of the FCA’s Principles for Businesses. It actually requires a whole new approach to the development and delivery of customer communication, including pre-contractual and contractual documentation.

The focus of regulatory requirements should now not only be on the clarity and fairness of the communication itself, but also whether and to what extent it is likely to be understood by the customers intended to receive it.

One key structural change for some advisory firms will be the need to develop more tailored customer communication channels for different customer groups.

Embedding the consumer duty will require firms to tailor their approaches to the particular needs and characteristics of their customers.

While it is clear from the FCA’s policy statement that this need not be delivered to an individual customer level, firms should expect close scrutiny of the decisions taken to group customers – using different characteristics – for these purposes.