This year will see the roll-out of the new consumer duty and Square Mile's chief distribution officer Steve Kenny highlighted some of the challenges for advisers.
Speaking at a roundtable yesterday (February 1), Kenny said over the past year it has consulted widely with the Financial Conduct Authority, fund groups, financial advisers and industry bodies to inform its response to both the Sustainability Disclosure Requirements (SDR) and investment labels and the new consumer duty.
In exploring what financial advisers need to be aware of in order to be fully compliant with the implementation of consumer duty, Kenny said data will be key.
“One of the challenges that the industry is now facing is that data is going to have to be exchanged in some volume,” he said.
“The problem with any form of data exchange is unless it's in a standard format, it is actually proved more difficult to absorb and assess than actually the value that you get from the data.”
The new consumer duty outlines clear principles that a firm must act to deliver good outcomes for retail customers.
Kenny explained that when talking to advisers across the country, they would say this is one of their primary goals.
“This is what they are trying to do,” he said. “[However], the need now is to find an audit trail on the processes and the mechanisms by which they look to achieve that and subsequently, how they test that they are continuing to do this.”
Providing the example of other markets, Kenny said there is something very similar to consumer duty in Australia.
He said this resulted in one firm, across the globe, having to actually pay back fees that it had taken from clients over a period of time because when the regulator investigated, the service had not been provided to the level that they said it would be.
“It put that particular business into bankruptcy and it was then bought by one of the banks, so that there's clear evidence across the globe that the regulators are looking at financial services and want to have some comfort that what is being charged, is actually justifiable, and offers good value.
“That's one of the primary requirements here.”
Yet one of the big issues is how to measure what is good value.
Kenny said the aspirations of the regulations are “very, very admirable” but the challenge will be for the client because when they receive reports now from their adviser, it will contain more paperwork than previously, and the paperwork will have to justify the value of each part of the proposition.
Passing the blame
The other thing that the consumer duty brings is an obligation across the chain, Kenny explained.
“So if you take what we provide, managed portfolio services, to advisers where we are operating as an agent to clients and the adviser is our client, no longer can we take the view that if the adviser is happy, we've done a good job.
