In today’s financial landscape, the role of financial advisers is more critical than ever. As consumers navigate complex investment decisions and seek expert guidance, it is essential for advisers to fulfil their responsibilities towards their clients, says Stephen Mitchell(pictured), Head of Adviser Product Strategy, FE Fundinfo in his analysis for IFA Magazine as follows:
To that end, the Financial Conduct Authority (FCA) has said that it expects the eagerly anticipated arrival of Consumer Duty to improve outcomes for consumers in all areas of business. The Duty – measured against four key outcomes – will mean consumers should get communications that they can understand, products and services that meet their needs and offer fair value and receive customer support when it’s needed when the Duty comes into force at the end of July.
While Consumer Duty won’t – and shouldn’t – be a complete rewrite of the rules (the emphasis on putting the customer or client first should be nothing new for most advisers), it does means that advisers must now demonstrate how they put their client’s needs first and build the Duty into their culture.
But behind the theory, advisers must interpret the requirements and build them into every step of their day-to-day financial planning process to ensure they effectively meet the FCA’s four outcomes to promote trust, transparency, and positive outcomes for their clients.
Products and services
The first Consumer Duty outcome says that each firm is responsible for ensuring consumers are equipped with the right information to make effective, timely and properly informed decisions about their products and services.
Meeting the first outcome requires financial advisers to truly tailor their advice to the individual needs of the client. It is crucial to conduct thorough fact-finding and needs analysis to understand each client’s unique circumstances, goals, and risk tolerance. This process can be aided by the use of technology to enable clients to input and update their own information or to bring to life potential future scenarios using cashflow planning and stochastic modelling.
Helping clients understand their financial situation and the variables that may change it with compelling cashflow plans, will aid their understanding of why you have chosen a certain investment strategy to support them. Selecting that investment strategy must be based on solid research and a clear audit trail of research and comparisons undertaken in order to make the recommendation.
By building personalisation into the financial planning process, advisers can be sure they are recommending suitable products and services that align with their clients’ needs, ensuring transparency and avoid conflicts of interest.
Price and value
Advisers need to provide fair and appropriate products and services to clients. This also involves assessing the suitability of recommendations based on individual circumstances, conducting diligent investment research and evidencing each recommendation and decision.
Ongoing monitoring ensures that advice remains suitable and aligned with clients’ evolving needs. Clear communication of fee structures and avoidance of hidden charges are also crucial. Advisers should clearly communicate their fee structure and any potential conflicts of interest to their clients and ensure that the fees charged are fair and reasonable for the services provided; avoiding any hidden or unexpected charges.
Software that helps advisers to calculate reduction in yield and ex-ante costs and charges are crucial here for evidencing that fair value advice is being achieved. Building their own firm’s fee structure into any cashflow projections will also help ensure they have communicated the impact of charges on their clients’ financial position in a clear and transparent way.
Consumer understanding
The third outcome says that advisers are now required to ascertain that clients are equipped with materials that fit their specific needs.
For this, communications should be tailored to each customer including any characteristics of vulnerability. Clients like to receive information in different ways but for many, a secure, digital client portal and messaging capability provides an easy-to-use form of document exchange with their adviser. Advisers should avoid complex jargon and explain information in plain language, enabling clients to make informed decisions. It is essential to cover all relevant aspects of products or services, including risks, costs, and potential outcomes.
They should also look to provide regular communication and updates to keep clients well-informed. Using software that allows for some flexibility in format of reports being produced for clients is key in aiding each client’s understanding of their financial plan, investment strategy and ongoing performance. One area which is only now developing in terms of consumer understanding is the field of ESG.
By using a questionnaire that helps clients understand what sustainability means for them in their everyday lives, advisers can help them also understand how that has impacted the investment recommendation.
Consumer support
The final outcome says that the need to avoid to foreseeable harm cuts across all aspects of the Duty. Regularly assessing potential foreseeable harms which could occur for a client, showing that advisers have considered the risks clients could be affected by, adding controls to manage those risks and monitoring how effective those controls are over time.
This highlights the need for continuous support and service throughout the client-adviser relationship. Financial advisers should establish a framework for ongoing monitoring, periodic reviews, and proactive communication with clients. This includes regular assessments of the performance and suitability of recommended products, addressing any changes in clients’ circumstances, and providing additional support or guidance as needed.
By maintaining open lines of communication and demonstrating a commitment to client welfare, advisers can foster long-term trust and loyalty. Setting up the infrastructure in their firm to ensure they are alerted automatically of any key events affecting client investments is crucial and investment research software can help with this. Similarly, being able to compare forecasts and add life changing events to a cashflow plan to show impact is essential.
Looking ahead
The principles of Consumer Duty should not just be seen as a regulatory requirement but also a moral obligation to provide clients with the best possible advice and service. However, advisers already do many of these things in practice day to day. What will become more crucial moving forward is how they build they ensure the requirements are in every step of the financial planning process and that they can evidence that with ease.
To help smooth the path FE fundinfo has been exploring and developing solutions via its Financial Advice Hub products – which comprises FE CashCalc, FE Onboard, FE Analytics and FE Investments – to help support financial advisers navigate the FCA’s Consumer Duty expectations and evidence how they are meeting them.
Following a recent integration launch between FE CashCalc and FE Analytics – as well as the addition of new Value for Money fields and Assessment of Value documents to FE Analytics from the end of June – the Financial Advice Hub is well placed to help financial advisers address the four Consumer Duty outcomes. Time will tell if the FCA’s desired outcomes for Consumer Duty will pan out.
Now, however, is the right time for advisers to show and demonstrate that they have their ducks – or tech stacks and investment propositions – in a row, while ensuring they are in the best possible position to meet the new requirements head-on, come 31 July.
Written by Stephen Mitchell, Head of Adviser Product Strategy, FE Fundinfo.
