Since its implementation at the end of July 2023, Consumer Duty has likely underpinned your approach to financial advice. Targets like making your clients a profit and keeping your costs competitive might seem like obvious ways to align with Consumer Duty principles. But a focus on financial wellbeing could also be key to delivering good outcomes.
Here, we’ll show you 3 ways that prioritising your clients’ financial wellbeing could align with the ability to meet your Consumer Duty objectives:
- Avoiding foreseeable harms with a future-focused mindset
- Supporting vulnerable customers through understanding
- The advice journey and long-term financial wellbeing
What’s the relationship between financial wellbeing and Consumer Duty?
The aim of Consumer Duty is to improve outcomes for consumers of financial products and services. To help people meet their long-term financial objectives and avoid foreseeable harm. Financial wellbeing sits at the heart of this.
Good financial wellbeing means having security around money, now and in the future. But it’s also about mindset. Understanding what brings joy and purpose – and having money goals to achieve that happiness. We see strong ties between the benefits of improving a client’s money mindset, and the principles of Consumer Duty.
The concept of the ‘wellbeing maximiser’ is an approach to financial advice that we find particularly valuable. This means focusing more on the bigger picture of financial wellbeing among the clients you serve, rather than solely on profit and performance objectives.
Three ways to align financial wellbeing with Consumer Duty
Here are three examples of how a focus on financial wellbeing could help you to meet Consumer Duty outcomes.
1. Fostering a future-focused mindset could help to avoid foreseeable harms
There’s a link between helping people picture their future self and them experiencing better outcomes. People who have a stronger connection to their future self are more likely to have built an emergency fund and are less likely to have high levels of debt.
You can play an important role in encouraging your clients to adopt a future-focused mindset. In turn, it could help them avoid foreseeable harm. In a video discussion on the topic, our Pensions Director, Steven Cameron, agrees, saying he doesn’t think many consumers could picture their future self on their own. ‘To me, that’s a key role for the adviser, and an increasingly important role’ he says.
We share examples of questions to help your clients picture their future selves in our Financial Wellbeing Index.
2. Supporting vulnerable customers through understanding
As an adviser, you’ll likely have experienced clients with different vulnerabilities. It’s no surprise that the treatment of vulnerable customers is a cornerstone of Consumer Duty, because it’s likely we’ll all be vulnerable at some point in our lives. When people have vulnerabilities, they might be more at risk of foreseeable harms, and this is where an emphasis on financial wellbeing could have significance.
‘A lot of the time, when people are vulnerable…they will act in ways that might not be in their best short or long-term interests’ says Steven Cameron. ‘Consumer Duty wants us to consider how customers behave and transact in the real world.’
Dr Thomas Mathar, Insights Manager at Aegon, says treating clients as ‘humans’ aligns with the FCA’s desire to acknowledge that we’re all individuals. As well as recognising vulnerable clients, this also means accepting that people will have different lives, pressures, and emotional responses. By focusing on financial wellbeing, you could have a greater consideration of your clients’ biases, concerns and emotional needs – helping you to craft more personalised financial plans.
One of the FCA’s four characteristics of vulnerability is capability, which could include a lack of financial literacy. You’ll likely spend more time assisting these clients to improve their understanding. Clear communication is important. Explaining to consumers the risks and implications of their choices and clearly setting out the fees they will pay could help to meet Consumer Duty expectations.
3. The advice journey and financial wellbeing for the long run
There’s an obligation under Consumer Duty to pay attention to outcomes for consumers, but the journey is equally important. Financial wellbeing is about a person’s financial position in the here and now, but also their ability to be financially well over the long term.
This means thinking not just about outcomes but also the whole advice path. As people start living longer, more multi-staged lives as outlined in our Second 50 report, listening and empathy could help shape your client’s financial wellbeing and lead to better outcomes.
Financial wellbeing and Consumer Duty – two dovetailing concepts
Consumer Duty and financial wellbeing are intrinsically connected. The techniques used by a wellbeing maximiser include empathy, listening skills, understanding of mental shortcuts and biases, and how that affects progress. By adopting these techniques in your financial planning, it could help you to more naturally comply with Consumer Duty and improve the financial wellbeing of your clients.
An additional benefit of the ‘wellbeing maximiser’ technique is the potential to improve your profit margins while doing so. Read our guide to becoming a wellbeing maximiser to find out more.