Written by Zara Bray, Key Relationship Manager, Legal & General Mortgage Club
Advisers are under a significant amount of pressure to keep up with the Financial Conduct Authority (FCA)’s Consumer Duty rules, and many are feeling overwhelmed with upcoming deadlines, and questions about compliance under the new regulations.
In short, Consumer Duty aims to create a fairer, more consumer-focused backdrop for financial services practices, with a goal to ensure good customer outcomes. In the mortgage space, the Duty is pushing broker firms for evidence of clear processes to back up the decisions that they make, and the outcomes they deliver for customers. The good news is that many brokers and lenders are off to a strong start when it comes to Consumer Duty, and the mortgage advice industry has already made significant progress around treating customers fairly under guidance from the FCA. However, while the needle is moving in the right direction, there is still work to do.
Checking consumer understanding
Whether they are experienced in the mortgage process, a first-time buyer, or a vulnerable customer, every client deserves to understand the decision they are making. Consumer understanding is a key part of creating good customer outcomes, and it allows clients to receive information in a way that they can fully comprehend, allowing them to make the most appropriate and well-informed decision that they can at the time. To facilitate this, firms should always ensure that their communications are likely to be understood by their customers.
Rather than directly questioning a customer on their level of understanding, advisers can try shifting the focus to the processes and procedures within the firm, which is far less likely to be overwhelming or intimidating. For example, it can be useful for a broker to ask their client to relay information back to them during one-to-one meetings, ensuring that they are clear about what they are purchasing. It is also a good idea to keep an eye on the actions that customers take following meetings to ensure they align with what is expected.
Supporting vulnerable customers
When it comes to the fair treatment of vulnerable customers, Consumer Duty builds upon existing FCA guidelines. Vulnerable customers are those who are especially susceptible to harm due to personal circumstances, such as poor health, cognitive impairment, or significant life events.
When a client is vulnerable, it is not only vital to make sure that they aren’t having worse outcomes than other customers in terms of fees, but also to assess the service they are being provided to be confident that they are appropriately supported. The FCA’s Financial Lives survey found that almost half (47%) of UK adults showed one or more characteristics of vulnerability in 2022, so firms providing the training and resources to support these customers is essential.
Making use of quality data
In order to monitor and evidence customer outcomes, firms need data, and a good start can be made with the data that they are already collecting. While this will look different from firm to firm – as smaller firms may not have access to as much data as more established firms due to size and client base – the core principle remains.
A small amount of quality data is far more valuable than an abundance of unusable data. It is also crucial that firms are evaluating the data that they do have, and using it to understand the outcomes that customers receive. This will enable firms to take action where needed to ensure good customer outcomes are being achieved.
The pressure is on, particularly alongside the challenges that current market conditions present for brokers. With these factors in mind, now is the time for broker firms and lenders to come together and collaborate peer-to-peer for a smooth transition into the new regulatory landscape.
No one has to go it alone and there is a wealth of guidance and supporting materials out there. This is not just a deadline or a one-off exercise, it’s the beginning of a new era for the mortgage industry, in which collaboration is key and it’s not too late to get involved in the conversation even beyond the 31st. Any advisers who need support with meeting Consumer Duty requirements should not be afraid to seek help themselves and continue to work together as we clear the next hurdle.