As all financial services firms consider the impact of the new Consumer Duty rules, a recent Royal London report  found that 19% of advisers surveyed were unaware of the new Consumer Duty whilst a further 27% did not expect to have to make changes to their businesses or practises following the introduction of the regulations. At Alpha we believe there will be changes required for all types of Advice firms, regardless if they have 1 or 100 advisers. In this era of data-led supervision by the FCA, adviser firms will have to consider how they evidence compliance with the cross-cutting rules and four outcomes stated by the FCA.
The Consumer Principle
Advisers are already at the forefront of delivering good outcomes for retail customers, as through planning they actively seek to understand and align their clients’ needs and goals with appropriate solutions. However, advisers will have to do more to document and evidence that their solutions and recommendations deliver good outcomes for their customers.
Simply relying on existing processes including lengthy suitability reports and disclosures will not be sufficient to evidence good outcomes. Wide reaching elements of how a firm operates will need to be framed within the Consumer Principle, particularly how firms;
- Identify and engage with prospective and existing clients;
- Charge clients for their services and the value received;
- Identify and oversee the products and providers they select for their clients;
- Evidence ongoing alignment of the solution to the clients needs;
Documenting and evidencing all the above elements will not be an easy task, especially against the backdrop of a short implementation period (9 months), as well as the need to maintain high quality services for existing clients.
The Cross-cutting Rules
Advisers need to consider if their client facing materials and processes, created and edited through preceding regulatory change and compliance reviews, align in good faith with their retail clients’ needs.
Alpha also believes that the need to avoid foreseeable harm is seriously jeopardised by the facilitation of execution-only actions when instructed by the client against the recommended advice. Adviser firms who derive a revenue from this will need to review the provision of these services and think quite seriously how they fit with the regulation.
For adviser firms to demonstrate that they are enabling and supporting retail customers to pursue their financial objectives we believe that firms are going to have to revise their factfinding and client information gathering processes. The focus will no longer be on just capturing the information, but rather being able to evidence advisers have engaged and educated clients through the process.
The Four Outcomes
Finally, we believe how advisers evidence the Consumer Understanding and Consumer Support outcomes is going to have meaningful impacts on business models and data gathering, specifically with regards to:
- how advisers evidence client understanding of the products and services being recommended
- how advisers provide timely support to clients through onboarding and ongoing reviews, especially when dependent on third party providers
- how advisers demonstrate that products and services represent fair value and align to the client’s needs as articulated during fact-finding
This is a particularly acute issue considering many clients engage advisers with the specific desire to ‘outsource’ the need to understand the complex world of financial services.
Whilst there is undoubtedly a lot of work to get firms and advisers Consumer Duty ready, the good news is you’re not alone. Advisers will need to work with their product and service providers who are all considering the nuances of the regulation on their businesses. The spirit of the new rules will only truly be met if all the players in the Financial Services ecosystem demonstrate that they’re working together for the good of the end client/consumer.
How Alpha can help:
Alpha has developed a Consumer Duty Toolkit to support our advisers and their firms with gap analysis and implementation, if you would like to discuss how we can support you or would like to discuss the new Consumer Duty proposals further, please get in touch
 “Counting Down to the Consumer Duty” Royal London, May 2022: Counting down to the Consumer Duty (royallondon.com)