Consumer dutyOct 31 2022

Risk of complacency with consumer duty, industry warns

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Risk of complacency with consumer duty, industry warns
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The Financial Conduct Authority's first deadline for the consumer duty is today (October 31) and while some advisers have said they are prepared, there is a looming concern among other industry members.

In July, the regulator published a policy statement which outlined that it was giving firms an additional three months to implement the new consumer duty rules.

The FCA announced that companies will have until July 31, 2023 to implement the consumer duty rules for all new and existing products and services that are currently on sale. 

However, Warren Vickers, managing director at Tenet Compliance Services, said despite this extension, “the grit in the oyster” is the October 31 deadline for all firms to have their implementation plans in place. 

“Plans need to be properly documented and made available on the regulator’s request,” he said. 

 My business processes are continually reviewed and updated as a matter of course, in spite of and not because of the consumer duty.  Matthew Walne, Santorini Financial Planning

“However, without the impetus of having to make a submission, it’s likely many advisers will let the deadline slip by and leave themselves open to both not meeting the broader implementation deadline and regulatory scrutiny.

“It’s true that many advisers will already be operating in line with the duty’s broad aims but that brings with it the misconception that nothing needs to change. Expectations are increasing and compliance with existing standards alone won’t be enough.”

Likewise, Nathan Fryer said as an outsourced paraplanner, he is looking at ways to help advisers comply with section eight which is consumer understanding. 

“At the moment as I think most advisers do, we have a signature page which clients basically tick to say they understand,” he said. 

“We are looking at ways we can enhance this process to help demonstrate client understanding without increasing the level of paperwork and disclosure that clients already have to deal with. 

“In terms of consumer duty overall, I think a lot of advisers do what they are supposed to do, however a lot of it is stored in the advisers head (one man band especially) and while that is great, what process do they have in place to question their own processes and procedures?”

Fryer said the majority of advisers do the best for their clients, and the majority of them will not have a great deal to do other than perhaps document what they do and why they do it.

No change needed

Speaking to FTAdviser, Matthew Walne, chartered wealth manager at Santorini Financial Planning, said having gone through his consumer duty checklist, it would seem that most of the focus is on product providers and not advice firms. 

“Having reviewed my action plan I don’t have to change anything,” he said. “I’ve recently updated my vulnerable client process, so nothing else needs to be changed or updated. 

“My business processes are continually reviewed and updated as a matter of course, in spite of and not because of the consumer duty.”

Walne said he is sure most of the firms he knows well will also be in a good position and probably will have little or nothing to do as they already place their clients at the heart of their business. 

“Clearly there will be a lot of firms out there that will need to do a lot of work otherwise this wouldn’t be coming into force,” he said. 

Meanwhile, Robin Melley, chartered financial planner at Matrix Capital said his consumer duty action plan and implementation plan are both written and agreed by his board. 

“Our non-executive director has taken on the role of consumer duty champion and he is turning the plan into a series of work streams for team members to do,” he said.

“Having drafted the first iteration of the plan, I do think that this is a wonderful opportunity for firms and the profession as a whole to raise the bar and be recognised as a safe pair of hands for clients.”

However, Melley argued that in order to implement this properly, there is a significant amount of work to do and he doesn’t believe July 31, 2023 is a “realistic date” for full implementation. 

“I would suggest it is a good milestone that can be measured but it should be pushed out to 2024 but with checks along the way,” he said.

 This will be a difficult balancing act for smaller firms, but advisers can’t afford to kick the can down the road.   Warren Vickers, Tenet Compliance Services

“Otherwise, firms will be forced to fudge it - especially small firms with limited resources and team members focussed on client work.”

To help with the implementation, in September, the FCA announced a series of webinars to be held in October and November to allow firms to understand the regulator’s expectations and prepare for implementation of the consumer duty. 

The City watchdog said the webinars will be of interest to regulated firms, trade associations, professional bodies and compliance consultants and will be split by sector. 

Claire Phillips, chartered financial planner at First Wealth, said the firm read the consumer duty guidance, along with other guides issued by other sources and attended various webinars.  

“These helped us to identify and distil the key points,” she said. Having absorbed these key points, the management team met offsite to discuss the implications and opportunities for First Wealth.  

“We very much see consumer duty as an opportunity to innovate and improve our offering to clients.”

First Wealth said it has drafted the implementation plan and has put together a list of all the areas it needs to review, things it wishes to put in place and the resources available to help.  

It is also involved in two external consumer duty working groups to share ideas and best practice, which the firm has found useful to hear what other people are doing. 

“To get the wider team thinking about consumer duty , we did a presentation at our quarterly offsite meeting and did an exercise that involved them thinking about what value we provide to clients.  

“We will be sharing our implementation plan with them and involve them in the work that we will be undertaking in the coming months to ensure we hit the July 31 implementation deadline.”

Firms turn to tech and data 

In a cost benefit analysis, the regular estimated the total one-off direct costs firms may incur to comply with the duty are likely to be in the range of £688.6mn to £2.4bn, and the ongoing annual direct costs to be in the range of £74.0m to £176.2m. 

These costs will be shared between the circa 51,000 firms which it regulates and  includes costs to firms to understand the consumer duty, perform gap analysis on their policies and processes, make relevant adjustments through change projects, train their staff on the new requirements, IT costs for any system changes and costs to monitor and test consumers outcomes. 

“In addition to the direct costs, we think that firms may also incur indirect costs in the form of potential loss in profits due to changes they make to their product design and prices, but this loss of profits should be transferred to consumers,” it said in the consultation paper.

Vickers said advice firms are under a lot of pressure to allocate resources towards the new consumer duty standards. 

“With estimated implementation costs ranging up to £26,000, there’s a danger that risk management attention will simply get rerouted to consumer duty issues, leaving other compliance risks to fall by the wayside,” he said.

“This will be a difficult balancing act for smaller firms, but advisers can’t afford to kick the can down the road.”

Vickers explained that a structured, step-by-step approach is key to managing regulatory change, and any advisers who do not already have consumer duty implementation plans in place should begin with a gap analysis “to benchmark their current operations and better pinpoint the steps they need to take to meet these new obligations”.

Elsewhere, research by Moneyhub found that almost half (48 per cent) of firms plan to invest in technology in order to deliver more personalised communications and 41 per cent will invest in tech to better access and utilise customer data and insights.

In its new report FCA Consumer Duty: Business Burden or Golden Opportunity?, 150 chief executive officers, chairpeople and board directors were interviewed on their preparedness ahead of the first consumer duty deadline.

It found that there was a significant knowledge gap across many firms with 38 per cent of senior decision makers stating they had either limited or no knowledge of the upcoming consumer duty legislation.

Around 22 per cent of firms had projects in place in order to meet the deadline in 2023, and a further 28 per cent were currently developing plans to become compliant. 

Samantha Seaton, CEO of Moneyhub, said: “There are no excuses left, businesses must ensure they understand their customer completely in order to offer products and services that fit their circumstances throughout the entire duration of their relationship. 

“By better understanding your customer, it means you can offer super relevant, appropriate products and services, and ultimately create stronger relationships and build loyalty. Smart, forward looking businesses will seize this moment and reap the benefits of truly understanding their customer.” 

sonia.rach@ft.com

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