Consumer dutyNov 7 2022

Client communication is the 'fundamental issue' of consumer duty

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Client communication is the 'fundamental issue' of consumer duty
Mark Polson, founder at the Langcat

Speaking at the Personal Finance Society’s Festival of Financial Planning this week (November 2), he discussed what the regulator’s new consumer duty framework would mean for firms

He said: “The fundamental issue is communications with clients and a lot of this isn't [advisers'] fault. 

“It has to do with the absolute barrage that most providers chuck out here, which has got nothing to do with legal requirements, which has nothing to do with compliance requirements. 

“It has everything to do with 'ass covering' added over years and years and years.”

He said the challenge is for the providers that advisers work with to strip a lot of that stuff back.

“You simply cannot give somebody a 95 page [terms and conditions] document and think it is fine because the client can't possibly make an informed judgement based on that,” he said.

They absolutely do not need to understand Markovitz and modern portfolio theory, they don't need to be tax experts...but we have to make sure that they understand what's going on.

“People say, when you sign up for your Kindle there are 100 pages or something but the difference is if I have a disappointing experience with my Kindle, I may not enjoy reading my ebook. 

“If I don't get it right for my retirement, I'm entirely screwed in a really fundamental way so the jeopardy that goes alongside it is material, therefore the impacts are material and therefore the work needed is material.”

He emphasised that advisers have a lot to do about ensuring that the communications that customers are given aid them into being empowered to make better financial decisions.

“It's not enough that they've got you. You have to help them do more, you're still going to do exactly what it is that you do, and that means if you're holding the companies you work with to account then do that,” he said.

“You're in control of what your clients receive.”

He said that if advisers simply pass on to their clients material which they cannot possibly be expected to read and then to make decisions on the basis of that material, they will have "failed" in upholding the spirit of the consumer duty.

Polson said in order to ensure ongoing suitability, everyone needs to understand what is going on, and that can’t be done if clients are having to “wade through all this morass of nonsense”.

He emphasised that it was not enough for clients to have an adviser - they had to understand it themselves. 

 Price is a fundamental component of value and we need to get both parts right in order to do that.

“They absolutely do not need to understand Markovitz and modern portfolio theory, they don't need to be tax experts, they don't need to be you but we have to make sure that they understand what's going on,” he said.

Polson said although there are clients who are “total delegators” and choose not to understand what is going on, “they're vanishingly rare” and they will become even rarer as time goes by because a lot of what the duty is about is ensuring that clients are empowered to make better financial decisions.

Price isn’t the same as value

One question he asked the audience was about how to determine something is fair value. 

“I don't know - do you know?,” he said. “No, you don't. The reason you don't know is that value is ascribed by an individual to a product or service based on their experience of it.

“For them to ascribe value to a product or service, they must understand two things. They must understand what it is and what it does, and they must understand what it costs.”

For consumers to determine something as fair value, they need to understand these things, according to Polson.

He explained that advisers are allowed to have a sense of what fair value is on behalf of clients, but it must be on behalf of clients. 

“That's quite important because the number of people adviser firms that say we use this stuff, which is kind of reassuringly expensive and we do that because we've always used it and it always works,” he said.

“But when we start adding all that stuff together, we get back into the price stuff and somebody's going to say price isn't the same as value.

“They’re right - it isn't. Price is a fundamental component of value and we need to get both parts right in order to do that.”

Over the past decade, Polson said the greatest thing to have happened is that advisers moved into the driving seat.

“You are closest to the client so therefore, you are in control. There is more control flowing through planning firms than there ever has been before.”

sonia.rach@ft.com

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