Consumer Duty

The price and value outcome requires firms to demonstrate charging approaches offer fair value, including between groups. The FCA defines ‘value’ as the relationship between the overall price the customer will pay over their lifetime with the product or service, and the benefits they’re likely to receive. So, this outcome isn’t just about charges. The FCA suggests any firm assessing the value of a service might consider what it costs them to provide it and market rates for comparable services.

Value

The FCA accepts that value isn’t all about price and cheapest isn’t necessarily best. There are a number of dimensions here:

• Does the design and structure deliver good value to those customers in target markets?
• Demonstrate you’re offering fair value to different groups of customers. 

Advisers have a two-fold responsibility:

• First, you'll need to show that your charges for advice represent value. As part of this, it’s important to recognise that advice has a value in its own right, separate from any product recommendation – that is a fundamental aspect of the Retail Distribution Review
• Second, that the overall charges across the whole distribution chain, so everything that’s come before and then the adviser charge on top, still offer value.

Charges

There’s no overall requirement to change your charging approach. However, the FCA gives some examples in guidance around possible concerns.

• The FCA has identified possible issues with fixed £ charges – these may not deliver good value for low-wealth individuals or those making smaller investments. This may mean you have to exclude them from your target market if you charge in this way. Unfortunately, this could increase the advice gap.
• And also, flat percentage charging can raise issues of fairness between those with small and large sums to invest. The FCA suggests you consider how much it costs to provide a service and if it costs you largely the same irrespective of the sum being invested, it may not be fair to charge the same percentage. This may point to having a tiered approach to charging.

You may need to segment and structure charges accordingly.  

With the consumer understanding outcome, the FCA expects firms to truly promote understanding, helping customers avoid foreseeable harm and pursue their financial objectives. This outcome relates to all forms of communication – verbal, visual and written. The many existing regulatory requirements around communications must continue to be met in full.

• If client communications are tailored for each individual, you can check their understanding as part of the advice process. This is something firms should also consider recording evidence of.  
• You could consider improving suitability reports – perhaps making them easier to navigate or reviewing the use of any generic paragraphs.
• If you offer mass communications and these are important, you should consider carrying out pre and / or post testing for understandability.

The consumer support outcome requires firms to adopt a tailored approach to the needs of customer groups including those with characteristics of vulnerability. This may be more relevant to those responsible for products once they’ve been purchased. But adviser firms should consider aspects such as managing and monitoring complaints and carrying out root cause analysis.

Vulnerable customers

The industry has been on a journey in terms of how to identify characteristics of vulnerability and to adapt not just our products and services but approaches accordingly. The Consumer Duty strengthens these expectations further and firms should make sure their employees know what to look out for and how to record instances of vulnerability.

Firms can’t simply wait for a customer to tell us of a vulnerability – we need to look out for signs of these proactively. Recently, the pandemic and the cost-of-living crisis created a whole new raft of vulnerabilities and all firms need to keep reflecting on these and if we’re doing what we should be doing to support customers through a tailored approach – and we also need to collect evidence of this.

The FCA is also keen to see firms actually measuring the outcomes vulnerable customers receive.

Foreseeable harm

The FCA accepts that no firm can protect all customers from every harm, however you should consider if your client is open to foreseeable harm. You won’t be held accountable for risks you reasonably believed the client understood and accepted. You can still act on behalf of insistent clients, provided you explain to them the risks of acting against your advice.

The FCA places a major emphasis not only on delivering good outcomes but evidencing this through robust MI. Adviser firms should regularly review all existing MI for completeness against the Consumer Duty.

What does robust MI look like?

The FCA has made it clear that it isn’t enough to deliver good outcomes, prevent foreseeable harm and support meeting financial objectives. MI must truly demonstrate you’re delivering the outcomes – not just measuring inputs or transactional data. The MI you need will be tailored to your firm’s:

• Sector
•  Size
• Client base
• The material influence you have on outcomes
• The extent of potential harm – for example, providing DB transfer advice versus providing execution only advice

As well as references to monitoring and MI throughout the guidance, there’s also a standalone chapter in the FCA's Finalised Guidance. This includes a long, but helpful list of suggestions around the sorts of MI you might collect. It’s well worth looking at chapter 11.33 in the Finalised Guidance.

It's worth remembering that the FCA expects Boards to draw on MI when signing off their annual Compliance Reports.

The final rules and guidance placed much more emphasis on culture, governance and accountability. The FCA expects that delivering good outcomes will be at the centre of a firm’s strategy and culture.

Firms should be able to demonstrate how their strategy and purpose, whether publicised or not, is consistent with the Consumer Duty.

•  Interact with your appointed Consumer Duty Champion. For firms with Boards, the FCA suggests a Non-Executive Director to sit alongside the Chair and CEO to make sure the Consumer Duty is considered in all relevant discussions. 
• The Consumer Duty should be reflected right across people policies, remuneration and culture, all to be consistent with delivering good outcomes for customers.