RegulationOct 24 2022

How to best prepare for the consumer duty

  • Describe some of the challenges of the consumer duty
  • Explain what needs to be done
  • Identify some of the processes advisers need to go through to be ready in time
  • Describe some of the challenges of the consumer duty
  • Explain what needs to be done
  • Identify some of the processes advisers need to go through to be ready in time
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CPD
Approx.30min
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CPD
Approx.30min
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How to best prepare for the consumer duty
(Reuters/Toby Melville)

It is being hailed as the biggest regulatory evolution in a decade.

But a worrying 5 per cent of financial advisers still do not know what it means and its potential impact on their business, according to research conducted by Alpha FMC in a recent survey of financial adviser businesses.

The Financial Conduct Authority published its final guidance on the consumer duty in July of this year, saying it will "fundamentally improve how firms serve consumers". Apparently, it also marks the FCA’s new approach at becoming more "assertive" and "data led".

The regulator is seeking to go beyond the usual checks and balances on processing and governance.

As with all consumer regulation, it is done with fairness to the consumer at its core – but that invariably means significant business change. Firms have been warned not to consider it an industry bashing exercise – ultimately, it is about getting financial advisers to raise their game in order to protect consumers.

The FCA has stipulated that financial adviser firms need a board-approved consumer duty implementation and maintenance plan in place by October 31 2022.

Given that 5 per cent of adviser firms do not even know what it is, we can safely say that a significantly larger percentage will not have drawn up their plans yet. The deadline for implementation of those plans will be July 31 2023, which does not leave firms much time.

What does consumer duty mean for advisers?

With the new consumer duty, the regulator is seeking to go beyond the usual checks and balances on processing and governance, to drive a complete cultural shift, forcing firms to put client outcomes at the centre of their businesses.

It is not to say that advisers have not been client centric; adviser firms are already at the forefront of delivering good outcomes for retail customers, but lengthy suitability reports and disclosures will not be enough to prove this anymore.

The consumer duty builds on previous regulations, so firms will not have to rewrite the rule book.

In this new era of data-led supervision by the FCA, adviser firms need to think about how they evidence consumer duty compliance through digital processing and robust data and management information on client outcomes.

And the consumer duty builds on previous regulations such as product governance and principle six from Treating Customers Fairly, so firms will not have to rewrite the rule book.

For example, firms who were thorough in their implementation of the Prod rules will be in a good place to adhere to the product and services aspects of the consumer duty.

Broadly, the consumer duty aims to achieve four outcomes for consumers and we would recommend advisers think about the impact on their business in these four ways:

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