Consumer dutyJan 16 2023

Consumer duty: Advisers must work to achieve client understanding

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Consumer duty: Advisers must work to achieve client understanding
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The Financial Conduct Authority’s former head of conduct specialists David Blunt has said advisers will need to work harder to ensure clients are not lost in terms and conditions from providers as a result of the consumer duty.

Some industry experts have argued the FCA's new consumer duty will see platforms being used to effectively act as regulators of advice firms.

However, speaking to FTAdviser, Blunt said the really important thing is for each person in the chain, whether its platform or adviser, to be clear with each other where their responsibilities begin and end. 

“Very often problems arise because there's not that clarity so I think it's going to be crucially important for that conversation to take place,” he said. 

“It's important to look at the different outcomes and to think through who is actually responsible for which of these outcomes.”

He argued there is a “real challenge” for advisers because the consumer's understanding is largely going to be down to them.

Leaders at all levels can show that they put customers at the heart of their business. 

“In many ways, the adviser might be receiving poor quality or unhelpful information, or information which is not in a form that is easy for a consumer to understand, and they've got a role to help the client understand what the key features are of the product,” he said. 

“I think the consequence of hundreds of pages of product description is that advisers will have to work even harder to deliver on the customer understanding part, and it may be challenging for advisers to say 'it's not my fault the customer didn't understand'.”

Inside the consumer duty

During his time at the FCA, Blunt led its priority of transforming culture across financial services. 

He is now senior adviser at Mazars in a consultancy role where he helps firms with their consumer duty.

Bunt said there are three areas that are challenging when it comes to the new regulations.

The first is that many advisers recognise there's a big data and management information (MI) challenge.

“They recognise things will need to be different because, for instance, we've got to do outcomes testing,” he said. “Well, what data do we gather from that outcome testing? 

“How does it meaningfully translate to MI which our senior decision makers can use? What goes up to the board?

“Some firms are thinking, ‘I've got a lot of MI, I've got a heck of a lot of data. I probably could use the data I've got more effectively, look at it in different ways, get other insights out of it. But there's also a chunk missing.'”

Blunt argued this is a big challenge for many firms, as building systems for smaller firms will be difficult.

The second area is culture, he explained, as he said the FCA has very much positioned this as ‘you've got to have a healthy culture if you're going to bring the duty to life successfully’.

“So [firms will be] thinking about culture change and about how we tweak our culture so that it's going to lead to staff behaviours which will deliver the right outcomes under the duty,” he said.

“You can't sort of flick a switch and change culture overnight.”

The link between culture and consumer duty is an interesting area to look at, according to Blunt. 

He said it was important  to look at it through the lens of the four drivers of culture such as purpose - what does the firm think of success, products and services, governance and systems and control.

“The leadership driver is such a critical driver for the behaviours of others in firms and leaders at all levels can show that they put customers at the heart of their business,” he said. 

“There's a much stronger and more powerful message that leaders at all levels can convey where actually they are taking a decision which might be in the consumers interests, but not so clearly in the short term interests of the firm.”

The third challenge he outlined was outcomes testing, as he argued there is a lot to be done by firms to test the outcomes that they are actually delivering. 

Firms then need to learn the lessons from that testing and make appropriate adaptations, all in time for commencement. 

“There's quite a big challenge in really understanding outcomes,” he said. “And to be honest, for a number of firms, the challenge starts with defining what good outcomes are for their products. 

“It’s easy to say there are good outcomes at some high level without really thinking about ‘what does that actually mean for our products?’”

Blunt said in order to tackle these challenges, specifically on the data and MI, there's a bit of a gap analysis to do. 

“Firms very often have got into a habit or routine of using particular data in MI and it's actually just taking a step back and thinking you firms now need to answer different questions with the data that you collect,” he said.

sonia.rach@ft.com

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