The clock is already ticking on FCA’s Consumer Duty. With less than a year to go until compliance with the regulation is required, we look at what you can do to get your house in order – sooner rather than later.
The forthcoming Consumer Duty rules are based on four outcomes:
So let’s assess each in turn and see what work may be involved for advice firms implementing the regulation.
The need for a ‘clear target market definition’ is already covered under PROD, so, in theory, the products and services element of the rules should create the least work for advice firms. However, this outcome underpins much of the work required under Consumer Duty, so rules must be fully embedded in your processes. For example, you need to make sure you are effectively segmenting your client base, looking at your clients’ different needs and objectives and demonstrating how they are best supported through your advice process. Technology providers can help with some of the heavy lifting, allowing you to review clients in bulk and ensure you deliver consistent advice and product recommendations in line with the needs of each individual.
The communications stipulations are likely to be more of a burden, as firms need to ensure that, as well as meeting existing regulations, comms are also understandable and help consumers make informed decisions. Importantly, you can’t rely on your judgement alone or other professionals in the sector to prove your comms are up to the job. You must evidence compliance by carrying out regular consumer testing.
Firms must review all their client materials, including regular and ad hoc communications across all channels, to ensure they are tailored to the end customer and will be simple for everyone, including vulnerable clients, to understand. For face-to-face conversations, modelling tools can bring the data to life, helping explain the client’s financial situation, set realistic expectations of their future wealth and improving engagement and decision-making.
The customer service aspects of the rules may also require some firms to improve standards. These state firms must meet – and evidence they are meeting – “consumers’ reasonable needs and expectations.” This will include reviewing your customer service and complaints handling procedures to ensure your firm is alert and responsive to client requests and issues. Importantly, you also need to take responsibility for meeting these “reasonable needs and expectations” when dealing with external partners, for example, making sure switches happen in a timely fashion, or that clients can withdraw money when they want. Resolving this aspect of the new Duty is less about adviser tech and more about firms taking a close look at how they can up their game in customer support.
Last but not least, the biggest challenge may come from delivering the price and value outcome, which asks firms to demonstrate that the prices charged for their products and services are reasonable relative to the benefits delivered. The new rules expect the idea of ‘value’ to be at the core of the advice process, from design through to continual monitoring. Proving value is about evidencing individual suitability and tangible outcomes and demonstrating that your chosen products best meet the client’s needs at the lowest price. Putting the right technology in place can help here, by helping to automatically document the decisions you make and ensuring consistency in your firm’s entire advice process – thus validating compliance.
Each of these four FCA-enshrined outcomes will be a continual process. You must constantly monitor and evidence that your clients are receiving outcomes that meet the required standards and use this information to improve your processes when needed. Technology again plays a vital role in complying with these new responsibilities, ensuring individual clients receive the mandated outcomes and providing advisers with data and oversight at a business level.
Without the right tech deployed, it’s hard to see how firms can gather sufficient evidence to assure the FCA that they are providing the best advice to their clients under Consumer Duty.
Taking a customer-centric approach to advice is not new, but the rules set a high bar for attaining and evidencing the expected standards. With the end of the implementation period fixed for next April and the regulator expecting “firms to use the implementation period fully and to be able to demonstrate progress when asked,” you need to act now on reviewing procedures or risk being called out should the FCA turn up.
For many years, EV has homed into the consumer when developing tools for advisers. Staying ahead of the pack with income drawdown functionality is just one example. Through our close adviser relationships, we help get it right for the customer, avoiding foreseeable harm and keeping the client on track.
Our EVPro tool perfectly aligns with Consumer Duty principles. The one-stop tool tackles everything within the end-to-end client/adviser journey so you can assess, build, stress-test, review and solve your clients’ financial plans within one easy-to-use solution.
With one calculation engine doing it all, there’s no need 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 good client outcomes. You can also easily demonstrate that you have done everything in your means to ensure your clients are on track and our stress tests help your conversations with clients and reassure them of the value you’re providing.
All this adds to the comfort that Consumer Duty doesn’t have to equate to Adviser Pain if and when the regulator comes knocking.
EVPro was developed in association with advisers to deliver unique functionality that provides a complete end-to-end financial planning tool suite. We think it’s a real game-changer. Why not book a one-to-one demo by clicking the link below.