With Consumer Duty the talk of the town in 2022, all eyes in the adviser community are turning to how to get ready to comply with the forthcoming regulations from the FCA. However, it’s no longer if but when enforceable rules arrive, so let’s look at the case for setting up good processes sooner rather than later.
Now that the FCA has upped the ante regarding Consumer Duty, issuing its second consultation paper last December (all 243 pages can be viewed here: CP21/36), it looks certain that new enforceable rules will shortly be established. And implementation looks set for April 2023.
There are many press articles on the matter amid a flurry of market commentary on the implications for everyone involved in retail financial services. Understandably, there’s some fear attached to this. However, whether it’s the relatively short time between now and the likely implementation date or the prospect of a deluge of retrospective Financial Ombudsman rulings down the track, financial advisers need to think about the pitfalls of not having adequate processes already in place once the guidance becomes enforceable.
What is Consumer Duty in brief?
We’ll get to potential solutions to Consumer Duty headaches in a moment. But, first, it’s worth scanning a summary of the main aspects of the FCA’s drive to improve the ‘customer first’ principles of consumer investment.
The FCA’s rationale is that it wants to see “a higher level of consumer protection in retail financial markets, where firms compete vigorously in the interest of consumers”. They wish to compel all firms involved in retail financial services to “put the consumer at the heart” of their business activities. The FCA is explicit in even including firms who don’t have a direct relationship with the end consumer, such as asset manufacturers and platform providers.
Four outcomes are part and parcel of Consumer Duty
- Communications must be compliant and “understandable and can facilitate informed consumer decisions”. Businesses will need to test this and gather corroborating evidence regularly. Consumers must understand what they’re told
- Products and services will need clear target market definitions. The FCA wants to bed down further the PROD rules that the investment and advice sector has had to act upon in recent years
- Customer service must be such that it “meets consumers’ reasonable needs and expectations”. So no more in-house roadblocks stopping customer queries and requests such as transfers being resolved speedily. And firms must collect evidence of doing the right thing here
- Price and value will be paramount, with businesses needing to demonstrate that their products and services' benefits are reasonable relative to the prices charged. The FCA expects firms – right from design to delivery – to keep consumers front and centre when setting prices, alongside continually assessing value received by the end customer.
Consumer Duty equates to a higher level of consumer protection
Ultimately, the FCA wants to see evidence of much better protection of end consumers in retail financial markets, prompting firms to “compete vigorously in the interests of consumers”.
The proposals specifically apply to retail clients (encompassing vulnerable clients), by which the FCA means all clients other than professional clients and eligible counterparties. This brings us to the key issue of consumer duty for retail financial advisers. They look beyond today to the imposition of new rules and regulations. Look beyond, they must, sooner not later, as 2022 rushes past.
Firms concerned about the implications of this new raft of enforceable principles will be excused for venting their spleen, having played by TCF rules and customer-centric compliance for years. Fortunately, the cooling balm is available in the form of some great tech geared up to help advisers do the right thing by their clients and, importantly, produce proof of it to the regulator on demand.
EV is Consumer Duty ready, with EVPro
For many years, EV has always focused on the consumer when developing tools for advisers. Staying ahead of the pack with income drawdown functionality is just one example. EV is all about getting it right for the customer at every stage through an ongoing relationship with advisers predicated on avoiding foreseeable harm and keeping the client on track.
EVPro as a tool perfectly aligns with Consumer Duty principles, which can be readily demonstrated on request. In essence, EVPro’s Review module provides reporting that evidence tangible outcomes. In addition, the metrics obtainable through the Goal module help the adviser adjust assets and investments in line with changes in client circumstances and market shifts.
As part of this one-stop tool – tackling everything within the end-to-end client/adviser journey – the stress-testing functionality of EVPro is unique in the market. Stress-testing outputs provide key evidence of the client’s ability to bear the loss.
With one calculation engine doing it all, there’s no need for advisers to use different tools for different parts of the advice journey. Thus sidestepping the problem of shifting measures, incompatibility issues and different approaches to data impinging on the good outcomes that advisers seek.
EV is your trusted partner in fulfilling Consumer Duty
The adviser can gain peace of mind in the Consumer Duty headspace via EVPro’s Review module. Not only ticking the compliance box but aiding client conversations along the lines of: “We get you on track, keep you on track and get you back on track if the market situation is adversely affecting your financial plan.” In addition, EV’s technology empowers the adviser to be evidence-led concerning client suitability. All this adds to the comfort that Consumer Duty doesn’t have to equate to Adviser Headache if and when the regulator comes knocking.
So what next?
Our EVPro software has been designed with the best consumer outcomes while delivering consistency to your advice process from start to finish, negating the need to integrate multiple third-party tools.
So, why not book your one-to-one demo of EVPro, by clicking the link below.