Will the Consumer Duty set a higher and clearer standard of consumer protection across financial services and result in improved outcomes for clients? Or will it end up in the online filing cabinet without delivering very much?
It’s too early to tell for sure, but I hope it will be more of the former than the latter. Here are my five predictions for 2024:
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There will be similar lessons to learn to those that came from ‘Assessments of Value’
The asset management industry started to produce Assessments of Value (AoV) four years ago. Initial feedback was ‘you’re too green’ – not a measure of sustainability but an accusation that all funds were deemed to be delivering value, which inherently didn’t feel right. Since then AoV has evolved to better reflect their intended purpose and we have seen funds closing and merging and charges being reduced.
A quick scan of the Fair Value Assessments from the Managed Portfolio Service world indicates that perhaps a similar pattern has emerged. I’m a believer that we can always do better, so perhaps seeing some more amber in these reports would be good, demonstrating that due care, honesty and attention is being paid to the assessment process and importantly, changes will be made.
I would also predict that further guidance on good practice for documentation will be issued but seeking and sharing best practice is important.
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Adviser businesses will be impacted
39% of advisers in the May 2023 Schroders Adviser Survey indicated that Consumer Duty would have little or no impact on their business.
It will be interesting to test this again in our next survey, but I was surprised at the results. In our own business, we have deployed not insignificant resources to meet the requirement to produce value assessments on an ongoing basis, test consumer understanding and update documentation. In addition, advisers should be asking clients about value for money to provide evidence that they are meeting this requirement. Surely this activity must have some impact on an advisory business and perhaps drive some change?
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Evidencing will improve
Advisers told us in our survey that the fair value outcome had been the most difficult of the four to prepare for. An excellent whitepaper produced by Boring Money and supported by Benchmark, tackled the challenging issue of articulating and evidencing value.
Significant consumer research identified that both practical and emotional factors were drivers of value for clients. The paper identified five key pillars of value each with different weightings – trust and peace of mind, planning, information, performance and fees.
The next stage is the production of a series of questions supporting these five pillars enabling advisers to assess how well they are achieving these for clients, evidencing this and benchmarking against others.
A high client retention rate doesn’t mean that clients always believe that value is being delivered and advisers will require a robust ongoing process to evidence fair value.
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Pressure on ongoing charging structures will remain
In the same adviser survey, 59% of advisers said that there would be pressure on their ongoing charging structure as a result of Consumer Duty.
In the 2020 review of RDR[1] undertaken by the FCA₁, they reported concerns that >90% of customers are placed in arrangements for ongoing advice and that some may be paying for services they do not need.
Ongoing client segmentation is vital, and we’re definitely seeing the emergence of new charging models such as subscription based, particularly for clients in early accumulation where an ongoing advice charge may not be appropriate.
There will be a lot of ‘test and learn’ ahead!
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Consumer understanding will change our communication
According to the National Literacy Trust, 1 in 6 adults in England in 2015 had what is considered to be ‘very poor literacy skills.’[2] It’s little wonder therefore that our own documentation reviews have already identified where changes are required. We’re an industry full of jargon and three-letter acronyms.
I believe that we also need to focus on how digital engagement with consumers can be improved – can we make better use of technology such as AI to support this? Perhaps not in 2023, but one to watch – our group CEO appeared at a meeting in the US as a hologram rather than flying across the pond, so anything is possible!
The end of the beginning?
Are we now at ‘the end of the beginning’? With the formal projects completed, Consumer Duty is here to stay and will start to evolve. The reviews and evidencing processes will become part of life.
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[1] Evaluation of the impact of the Retail Distribution Review and the Financial Advice Market Review, FCA, December 2020
[2] OECD, Survey of Adult Skills, 2015
