The Financial Conduct Authority’s director of consumer investments has warned advisers that viewing the consumer duty as a tick box exercise will not be sufficient to adhering to the standards.
Speaking at the Personal Finance Society’s Festival of Financial Planning, Therese Chambers said the successful implementation of the consumer duty by firms will help ensure that the outcome sought by the consumer investment strategy will be achieved, stating that the two are intrinsically linked.
She said the advice sector has become more professional, with advisers now better qualified and more achieving chartered status.
Many firms have improved, and continue to improve, the way they deliver their advice, such as using technology, she explained.
“Unfortunately, however, many firms still fall below the standards we expect,” she said. “That's demonstrated by high Financial Services Compensation Scheme costs, which are rightly a source of frustration for those many firms that do the right thing.”
Chambers said the consumer duty gives the industry an opportunity to focus on driving up standards further.
The focus on target markets should be understood as the need to understand the varying needs of the different cohorts of customers that advisers will have, she explained.
“We need to move from a one size fits all model, to models which are generally designed to meet the needs of customers and which recognise that not all customers have the same needs.”
She said advisers need to consider the products and services that will meet customers needs and pay very close attention to the risks involved.
“I cannot emphasise enough that this is a different lens to what you have been used to. And even though the rules are not yet in force, it requires your active participation to understand the degree and extent of the cultural shift that this entails.
“A tick box approach to detailed regulatory requirements will not be good enough. That will never be sufficient to answer the question of whether it's securing good outcomes for customers.”
Chambers described the consumer duty as a game changer for the FCA, stating it should be seen as providing a higher standard of protection for consumers.
“For many firms, the new duty will require a cultural change. That can’t be achieved simply by making adjustments in governance, MI and processes.
“These things are all important but the senior management of firms need to clearly demonstrate to the rest of their colleagues what good consumer outcomes at the heart of their business means.
“Firms who view the new consumer duty as simply a change to governance and processes will not meet the new standards.”
She concluded by stating that the new consumer duty aims to strengthen the legitimacy of outcomes and successful firms, reshaping the incentive structure, “so that when advisers do well by their clients, they do well for themselves too”.