The consumer duty’s extensive nature means that a client is likely to have been the subject of various iterations of the duty before even receiving advice.
“The FCA has pointed out that a number of firms are involved in the manufacture and distribution of investment products, from asset managers to platform providers to financial advisers, and each can determine or materially influence consumer outcomes,” says Mark Sanderson, director at Morningstar Wealth Platform.
“Under the duty, all of us involved in bringing investment choices to advised consumers have a responsibility to act so these retail investors receive good outcomes.”
When it comes to investment products for example, the FCA outlines how, among other things:
- The fund manager must develop a fund that meets the needs, characteristics and objectives of a target market;
- The platform provider must obtain sufficient information to understand whether any remuneration it receives would result in the product no longer providing fair value; and
- The financial adviser must consider how the firm meets the duty in how it designs and delivers advice.
One of the biggest challenges with implementing the new duty is how different firms in the distribution chain will work together, says Aegon pensions director Steven Cameron.
“Each firm will need to understand where others’ responsibilities lie and how they fit into the chain. Crucially, advisers have a duty to consider value across the whole chain, which means to comply, they need information from platforms and manufacturers of pensions and investment funds.
“It’s sensible that the FCA has set an earlier April 30 2023 deadline for manufacturers to provide such necessary information, including target markets information and the outcome of product value assessments. Manufacturers should also set out their intended distribution strategies to advisers.”
For manufacturers, the first step is to have plans in place for product, price and value assessments by October, complete those assessments by April 2023 and have communicated the outcomes to distributors by that date, says David Tiller, commercial and propositions director at Quilter.
This gives advisers three months to July 2023 to complete their own obligations under the duty in relation to price and value, and product and service outcomes, he adds. And while manufacturer reviews should help to expose overpriced products, Tiller says that price should not be mistaken for value.
“Manufacturers will need to help advisers by clearly highlighting what is missing from cheap products to ensure expectations are met with delivery.
"A good example might be making it completely clear that a manager will not intervene in even the most extreme market conditions if you purchase a cheap passive strategy with a fixed allocation."
The products and services outcome
Among the requirements of the duty on providers is that they must identify a target market for whom a product or service is designed, as well as develop a distribution strategy appropriate for that market.
For example, a firm manufacturing a complicated product might consider only allowing it to be sold with advice or by distributors who understand the product’s features.
The breadth of the duty will also see co-operation between manufacturers and distributors, with providers required to make “all appropriate information” available to advisers so they can: