Today (January 25), the FCA shared its findings on how larger firms have been planning for the duty and while it did find examples of good practice, it also found a myriad of shortcomings.
Bad practice cited in the review included little explanation of tangible action, a reliance on repackaged data, a lack of information sharing between firms, poor prioritisation such as "unclear" timelines, and a complacency about past improvements.
This duty presses home the point of having quality data collection for each product and service.Roddy Munro, QuilterThe regulator soon intends to target engagement with smaller firms to check in on their plans for the duty too.
Quilter's head of proposition specialists, Roddy Munro, said the multi-firm review from the FCA "highlights just how seriously the regulator is taking the new consumer duty".
He added: "It is a helpful document in that it not only sets out where improvements in implementation plans can be made, but also what is currently being assessed as best practice and where the industry needs to be setting its sights.
"Time is ticking in terms of getting processes and actions in place and this review highlights that as an industry we cannot take our foot off the gas."
The consumer duty, set to come into force on July 31, 2023, requires firms to match products and services to consumers more effectively, ensure the price and value of these products are fair, to actively avoid customer detriment - ie, "foreseeable harm", and to change their cultures in line with this new regulation.
Munro warned that the industry cannot look at price in isolation, but as part of the wider picture when evidencing value to clients.
"This duty, therefore, presses home the point of having quality data collection for each product and service and ensuring the correct metrics are in place in order to remain compliant. We cannot rest on our laurels that we do much of this already."
We found that some later life advisers were unprepared for the incoming step change.Stuart Wilson, Air ClubWhile the FCA has not been overly prescriptive in what it is expecting, Munro said this should not be confused with a lack of certainty from the regulator.
"Indeed, detail and accountability are key. The regulator has flagged today that you must be clear about who is leading the programme, with clear timelines and information on how the duty will be embedded within company culture.
"We have moved to an era of outcome-based regulation and as such providers and advisers need to take what they believe are the necessary steps to evidence good customer outcomes and fair value. This means doing a thorough gap analysis of the products and services you offer, assessing your client communications and creating a customer centric culture within your business."
Stuart Wilson, chair of later life advice network Air Club, said his company had already found that some later life advisers were unprepared for the incoming step change.
"As the FCA’s review of progress suggests, this is also true for the broader industry as a whole," he noted.
"The deadline for firms to make the necessary changes is fast approaching, so they must act now to ensure they are providing the best consumer outcomes under the new rules.
“Prioritising, making the changes needed and working with other firms should be the focus."
No firm will ever ‘be there’
While many advice firms are now confident they have done enough to meet the FCA’s requirements, some have suggested the guidance - being so open for interpretation - means it could be impossible for any firm to truly meet all that’s expected of them.
Philip Milton, who heads up a Devon-based IFA, told FTAdviser: “We are confident that we are ‘there’ already though with such subjective commentary within the guidance, one conclusion is that no firm will ever ‘be there’.
“The variations in regard to the quality of service delivery will be massive between one firm and another and their interpretation – or perhaps ultimately it will be the regulator’s disciplinary intervention.”
Milton’s fear is that the worst firms in the advice sector will continue to operate, whereas the “law-abiding and soft targets” will, he said, no doubt be the ones worrying about not quite meeting the expectations.
Transactional vs relationship-based businesses
The FCA is yet to take a closer look at smaller firms and their plans to implement the consumer duty, but today the FCA did say it will soon be sending out surveys and targeting smaller firms.
Perspective Planning co-founder, Phil Billingham’s main concern is that small firms with well-established client banks are going to struggle implementing the duty due to the fluidity of their client relationships.
“It’s going to be another challenge to adapt something designed for big firms into a smaller environment,” said Billingham.
“Firms are going to say ‘of course we treat customers fairly’, but how do you measure that? In some years, a client might move house, or their child gets ill abroad and money needs to be released urgently, or they go through divorce, and they’ve been on speed dial which has taken up a lot of an adviser’s time which they aren’t necessarily paid for.
“Then they get paid the same amount in other years, when markets are stable and there’s no major life movements.”
Not every client transaction is going to be precisely correct in terms of cost and matching in service, Billingham explained.
He feels there’s a real danger in trying to apply a granular approach for big corporates to small firms. “It’s transaction versus relationship structures.”
Signposting clients to ensure better service
One issue the FCA honed in on was a lack of information sharing between firms and commercial partners.
It said found some firms need to accelerate this work to implement the duty on time.
Broker at London Money, Jiten Varsani, said his firm has got an action plan which its compliance team has gone through.
"We’ve got no issues with the deadline, though we’re not miles ahead," he said.
"Bigger players are already ahead by seven or eight weeks, is what I’m hearing from the industry, while smaller firms are going to be closer to the deadline."
Acknowledging the FCA’s emphasis on firms needing to speak to each other, Varanasi said both IFAs and brokers need to be better at signposting clients.
"IFAs should be signposting. But how often do we highlight the need for IFAs? It’s got to be a two-way street. Financial planning isn’t just one or the other."
While Varsani focuses on mortgage and protection advice, he shares information with partners to offer clients advice on products such as pensions, investments, conveyancing, and wills.
Varsani has said he used to be scared of passing his clients on to somebody else, but what he’s come to realise is that by remaining boutique in size and introducing partners, he can keep doing what he loves until he retires - talking to clients - while also ensuring they get a good service across the board.
ruby.hinchliffe@ft.com
