Having been in the industry since the mid-80s, I’ve seen a lot of new legislation implemented, some of which have yielded significant benefits to the sector, and others perhaps less so.
Whilst most new regulations are designed to improve outcomes for customers, the consumer duty may go down as being one of the most effective.
In fact, observing how the Financial Conduct Authority is using it to challenge how banks and building societies are passing on interest rate rises and whether they are providing value for money, gives an early indication of what may come in the future.
Much of the consumer duty is based on common sense, which makes it easier to understand and therefore in theory to implement but there have been a number of challenges along the way.
The FCA has also been active in setting out its expectations and its feedback on early-stage reviews into how larger and smaller firms were implementing the duty, which has helped BRI finely tune our approach.
Drawing the path to Consumer Duty
To ensure we met the FCA’s deadline of July 31, 2023, several steps were carefully outlined and executed by the firm.
- Finding our champion
One of the early decisions we needed to make was who to appoint as our consumer duty ‘champion’. Whilst the FCA suggests this role be carried out by a non-executive director, we didn’t feel that it was reasonable to ask one of our two NEDs to take on this responsibility in addition to their other duties.
After deliberations, the board appointed our executive chair and former chief executive, Simon Boardman-Weston, to the role in October 2022.
Simon had the standing in the firm to lead the board discussions around the implementation of the consumer duty, having spearheaded the firm for many years, over the course of which BRI’s approach to the FCA’s previous ‘treating customers fairly’ initiative was firmly established.
Following his appointment, the champion and I would meet on a regular basis to discuss the project and our progress.
- Crafing and executing the blueprint
In October 2022, the board met and agreed on our high-level implementation plan, which served as the foundation for the project.
To ensure no stone was left unturned, we introduced a series of internal practices, including:
- Holding several cross-departmental meetings early on in the project, chaired by myself and attended by the champion, to discuss the various aspects of the consumer duty. Employees from all departments - including client service, marketing, portfolio management and advice - collaborated to identify areas that required our attention and develop action plans to remedy any potential gaps.
- Conducting mandatory training sessions to raise staff awareness and understanding of the new duty rules, particularly around consumer vulnerability, were executed through professional bodies such as the CISI and CII.
- Reviewing and updating our client-facing materials to ensure they are in accordance with the new duty rules.
- Launching a consumer duty-focused survey for our clients to feedback on our services, value for money and clarity of our communications. The results were very positive, with the majority of clients highlighting ‘peace of mind’, ‘having a trusted person/firm to look after my affairs’ and ‘growing wealth’ as the top benefits gained from the relationship with BRI.
Embracing the challenges to achieve excellence
As is the case with the implementation of any new process, we faced a few complications along the way.
The FCA’s ‘Fair Value Assessment’ requirement – which entails demonstrating the price a consumer pays for a product/service is reasonable compared to the overall benefits they can expect to receive – was perhaps the biggest challenge.
In particular, the indication that firms should consider what it costs to manufacture and provide the product or service against what it charges whilst appearing simple is not that easy to calculate even for a smaller firm like BRI.
Obtaining information about what other firms charge and the services they provide was also a time-consuming exercise in trawling through competitor materials to understand their service offerings better. However, once the overall approach was agreed and our assessment templates finalised, we were able to carry out these analyses confidently.
The board signed off on the project a few days before the July 31 deadline, concurring with my and the champion’s assessment that we were ‘materially’ compliant.
It would be difficult to confidently state that we are 100 per cent compliant at the time such is the scope and expectation of the new duty which the industry is still trying to get to grips with.
Harnessing the domino effect
We have found that implementing consumer duty processes has served as a powerful catalyst of change within the business – change which previously had only been discussed and not yet actioned.
As a business we have been upskilling our investment managers so that they have the appropriate skills and knowhow to provide broader financial planning advice, which we believe will greatly benefit clients and lead to much better outcomes, as clients will pay for advice and there will be no product or provider bias.
With the implementation of the consumer duty, we envisage that less money will flow into bespoke DFM due to the increased cost and whilst it will be suitable for some clients, we see a much larger target market in the future for less complex and cheaper MPS type solutions.
The consumer duty’s ‘fair value outcome’ will potentially make bespoke discretionary management more difficult to recommend and narrow the target market for it which will lead to more discretionary fund managers launching simpler, lower cost solutions. Something that BRI can already do.
Also, the new consumer duty rules are generating greater awareness of total costs in the distribution chain and at BRI, we are working hard on driving down costs where we can. We’ve noticed that fees for advice seem to be holding up well, but product and investment costs are increasingly under pressure. These pressures are leading to improved value for money for clients.
Looking to the future
The consumer duty deadline may have passed, but there’s still more work ahead.
We will be closely monitoring our activities and collecting consumer duty relevant management information to ensure we are continuously providing good customer outcomes, complying with the new rules and can demonstrate this to the FCA if asked.
The implementation process has also helped us identify areas which would benefit from further consideration, such as how we explain our costs and services to potential clients, both in written form and via our website.
Whilst it is early days in the consumer duty journey, we are confident the new requirements will bring positive change in the industry where other initiatives have failed to do so in the past. It’s been a driver for change at BRI, and hopefully this will safeguard our prosperity and that of our clients for many years to come.
Dean Wragg, chief operating officer and compliance director at BRI Wealth Management
