Rightly, a lot of recent attention has been given to the Consumer Duty reporting deadline (which we’ll cover in our next article).
However, firms must also be aware that as we approach the deadline of 31 July, on that same day, the other last remaining piece of the Consumer Duty also falls into place: to review closed products and services.
This update is hopefully a timely reminder of what you need to be mindful of and consider in relation to the work to be done to meet this requirement.
What are closed products?
These are products and services that are no longer on sale to new customers or available for renewal by existing customers.
Lenders and providers have until the 31 July to determine if these still offer clients fair value.
We believe it’s likely that if the product is deemed to no longer offer fair value, the provider/lender is likely to be in touch with the advisory firm and may adopt a number of actions in relation to a closed product or service:
- Reduce the price of the product to meet Fair Value Assessment (FVA).
- Close the product and offer an alternative where possible, taking into account any tax issues.
- Liaise with client’s advisers to agree another way forward to ensure a good client outcome. For example, to facilitate an easy transition to another product.
Where an adviser must consider alternative options, where the closed product has been judged not to offer fair value, thought will have to be given to any consequence. For example the tax or cost implications of moving away from a closed product.
What are closed services?
It may be that some firms will have advice proposition(s) that are no longer open to their new clients.
If firms have advice proposition(s) that are in place for existing customers, but are no longer being offered to new clients, a FVA on all closed propositions will need to be completed by 31 July.
Firms will need to prioritise this work and address the highest risk cases first. Firms may also want to consider why the proposition was closed, so that any learning points can be taken on board when they consider alternative options or developing new advice propositions.
A firm may follow the same process to review their closed propositions as they did when undertaking their FVA of existing propositions. But it’s worth noting that they don’t need to define a target market for a closed proposition.
In the FCA’s webinar of the 6 of December 2023 it highlighted some questions firms may ask themselves:
- Could any aspects of the design of my closed products lead to foreseeable harm or frustrate customers pursuing their financial objectives?
- Are customers with closed products receiving the support they need, when they need it, as well as communications that they actually understand? and,
- Do my closed products offer fair value? Considered in the round, are the benefits that those products deliver reasonable compared to the price and the cost to consumers?
If the advice proposition is deemed to offer fair value, and firms can evidence that they can continue to meet the client support and understanding requirements under the Consumer Duty requirements, they can continue to use the proposition for existing clients and review this again. This can be done at least annually to make sure the closed proposition continues to offer fair value.
If the advice proposition is deemed to no longer offer fair value, firms should provide advice to the client that will result in them receiving a proposition that offers fair value, again being mindful of any tax or cost implications.
Other considerations
The FVA assessment of all advice propositions (open or closed) is an at least annual requirement. In undertaking any FVA firms need to be aware of the FCA’s concerns regarding the provision of ongoing advice.
“A significant area of concern for us, and one in which we are seeing currently poor practice, is that many firms are still charging clients for a service that they are not benefitting from on an ongoing basis. We’re seeing too many firms providing a service which the client doesn't actually need. And the worst examples of that is where a customer is paying for a service, for example, an annual review, which it doesn't actually get at all.”
Readers will have seen that the FCA has taken action on this issue already and we expect to see it extend this work.
So it would be prudent, for all firms, when reviewing their advice propositions to ensure that they have in place:
- Robust management information to ensure that any promised service is being delivered as described.
- Where a periodic assessment of suitability is undertaken, that where the advice is to ‘do nothing’ or change course is clearly evidenced.
In summary, firms need to make sure that they have set aside time to review their advice proposition, existing or closed and clearly document the rationale behind any actions taken, as we expect to see greater FCA activity in this area, under the Consumer Duty regime.