FCA: ‘Tick box approach’ to consumer duty will not be good enough

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.”

 I certainly haven’t envied your positions in the last few weeks navigating the choppy waters of the financial markets.

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.

A high proportion of adults afraid to “dip their toes" into the consumer investment market at all, leaving their assets wasting away due to inflation. 

“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”. 

A thriving consumer market

Chambers said by nature, the FCA deals with and talks about significant consumer harm, which can sometimes create “a misleading impression that we don't want people to interact”. 

Instead, she explained, the FCA is “hugely supportive of consumer investors”, which allow people to maximise their quality of life while channelling money to companies looking to grow and innovate and support the UK economy. 

“Both these benefits are even more important in the current challenging economic environment,” she said. 

“I certainly haven’t envied your positions in the last few weeks navigating the choppy waters of the financial markets.”

Chambers said the regulator supports more people investing and said it was promising to see an increase in consumer investments accounts with British adults holding any investment apart from property rising from 29 per cent to 37 per cent over the past five years. 

However, she urged that investments need to be made wisely and safely which is why the consumer investments strategy and consumer duty have come about.

“Through the decline of defined benefit pension schemes and with longer life expectancy, people are more than ever making complex financial decisions about their money. 

“Simultaneously, the choice of products that you feel is confronted with has increased. People can understandably find these decisions intimidating and in this context, financial advisers have a vital role to play.”

She added: “Unfortunately, there are bad financial advisers out there who act more like sirens than expert navigators, luring unsuspecting consumers with the prospect of riches, but instead foundering their enhancements.”

Chambers explained that the fear that this could happen, even after taking financial advice, leaves a high proportion of adults afraid to “dip their toes “into the consumer investment market at all, leaving their assets wasting away due to inflation. 

She said around 9.7mn British adults who have £10,000 pounds or more investable assets hold the majority, at least 75 per cent, or all in cash. This is an increase of 1.3mn since 2020. 

“The deterioration of the current economic situation could see this trend continue,” she said. “The proportion of the population taking advice remains flat with 8 per cent having taken advice in the previous 12 months, the same as two years ago. 

“It is clear then that there is more to do to get the thriving consumer to market the UK needs and that there is nothing that more should happen in the financial advice space to enable that.”

sonia.rach@ft.com

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