One area that has not been widely discussed regarding the implications for the Financial Conduct Authority’s new consumer duty regulation is the additional strain it may place on relations between providers and advisers.
However, if you read through the new obligations that the FCA details in its July 2022-published policy statement (PS22/9) entitled ‘A new Consumer Duty’, there is little doubt that they demand much more of providers and platforms in terms of getting to know their customers and serving them better.
The implication is that they will only be able to ‘up their game’ for customers by accumulating greater knowledge of their financial situation, retirement ambitions, risks and vulnerabilities.
However, by placing these new obligations on providers, platforms and financial advisers in equal measure, there is a real risk that advisers will feel threatened, particularly by providers’ closer proximity to their customers.
Let us take a look at these new requirements with this potential conflict in mind and see where the pinch points might be. Then we can look at how to manage and mitigate any potential conflicts.
Moving from principles-based to consumer outcomes-based regulation
From July 31 2023’s ‘Implementation Deadline’, the FCA will impose this new regulatory regime – moving from the principles-based approach encapsulated by its Treating Customers Fairly initiative, to a better consumer outcomes-focused approach that puts new demands on all market participants.
In just a few months’ time providers, platforms and advisory firms alike must be able to provide evidence that they are ensuring their customers are being protected from foreseeable harm.
Providers must also show they are shaping products to meet specific, pre-identified target-market needs.
They must go further to ensure unsuitable products are not being bought by consumers outside the target market for which they are designed.
Further, they must ensure their customers fully understand the products they take out and help them meet their financial objectives in using them.
Finally, they must support their customers adequately. Failing to handle their requests or answer their queries in a timely way might be determined as a breach of the new consumer duty.
As the duty timetable rolls out it is clear the new requirements will fall heaviest on providers, particularly as, by July 31 2024, the duty must be applied retrospectively to legacy ‘closed-book’ product portfolios as well as accumulating customers.
This will draw in orphan customers that may have had little or no communication from their providers or original advisers in many years.
A new consumer duty requires all market participants to focus their efforts on improving outcomes for consumers in four key areas:
Outcome 1 – Consumer Understanding: The FCA now expects products to come with timely and clear information that customers can understand so they can make informed financial decisions.
They are making complex choices about debt levels, mortgages, pension savings, investments and other products.