Written by John Higginbottom, Head of Regulatory Propositions at Bankhall
Consumer Duty has changed the game for financial advisers.
More than ever, firms must be discerning to ensure they are doing everything in their power to work with customers’ best interests at heart and ensure that services, products and processes stand up to regulatory scrutiny.
Having spent the majority of my time around advisers, I know all too well how seriously they are taking the new rules. But for all the careful consideration and planning, as yet I don’t know of any business owner who feels 100% certain that they’ve covered all bases.
With the deadline fast approaching and the Regulator continuing its focus on how firms are working towards implementation, here are some potential blind spots advisers must watch out for.
Think you’re just a distributor? Think again!
Under Consumer Duty rules, the definition of a product has changed to include services related to all regulated activities, of which advice is one.
This means that almost every financial advisory firm is deemed to be a ‘manufacturer’ of a service. Contrary to what some may believe, even non-advised offerings designed to meet protection needs and certain execution-only services can make you a manufacturer.
As a result, firms are on the hook for ensuring fair value is delivered as the end point in the distribution chain, so it’s essential those unsure clarify their position and familiarise themselves with the additional requirements.
The FCA knows there is confusion on this and has reinforced this message, and continues to do so, via Dear CEO letters and further questionnaires. This work also addresses wider potential issues, with recent FCA reviews indicating that the current approach being taken by some firms is lacking.
Could restrictions I have in place create ‘foreseeable harm’?
Making customers aware of restrictions you may have in place should already be standard practice. If you’re unable to undertake pension transfers, for instance, then you should be letting clients know as early as possible.
Under Consumer Duty rules, it’s important to be open with customers if any restrictions could stand in the way of them achieving the best possible outcome.
Using mortgage advice as an example. For those who do not advise on protection or general insurance, when considering the potential foreseeable harm, it would be remiss not to highlight to the customer the risks of not having cover in place if they were unable to work and pay their mortgage.
Equally, if a firm is dealing with customers in need of care fees planning but is only qualified to support them on drawing down investments, then this creates a potential regulatory issue.
To be fully compliant, where there’s a chance that restrictions could have a broader financial impact, then it’s best to refer that client onto another firm who can better serve their needs.
Be sure to not close anyone off
A question we’ve been asked a lot recently is whether a firm should opt-out of working with a customer if something like a language barrier or other vulnerability is going to make servicing them difficult. After all, considering whether you’re best suited to help a customer and whether there’s a better method of serving them is a key focus of Consumer Duty.
That said, it’s important that advisers don’t close the door on certain areas of the community. Where services can’t be adapted to suit, ensure you have a strong bank of professional connections or preferred firms you can signpost people to from your wider network.
Clearly there’s more than one way to be compliant with the rules, and what may be an issue for one firm may not be for another.
And in return, such connections could provide you with some good opportunities, too.
With less than two months to go, now is the time to address any potential gaps in your firm’s Consumer Duty plans and seek help if there’s any doubt your processes or data won’t stand up to scrutiny.
