One year on from the implementation of the FCA’s Consumer Duty and with new deadlines coming into effect, Suman Rao, UK Managing Director of Avaloq, reflects on the implications for UK wealth managers and the role of technology in compliance.
“A year on from the implementation of Consumer Duty, its impact on the UK wealth management industry has been undeniable, causing a positive cultural shift across the industry as firms modify their practices and behaviours to ensure they provide fair value for clients. Navigating the regulation’s requirements has also brought challenges, and applying Consumer Duty principles consistently across value chains has proven to be complex and time-consuming.”
Impact on client relations
“Consumer Duty has reshaped client relations by making ongoing advice reviews crucial and extending compliance to closed products, necessitating re-engagement with inactive clients.
“Firms are under scrutiny for charging ongoing advice fees without providing annual reviews, often due to client disengagement or multiple investments spread across different firms. Some clients value having an adviser available for reassurance, even if they don’t use the service regularly, which is increasingly important in unstable economic conditions. As a result of Consumer Duty, if clients opt out of ongoing reviews, firms must now document their attempts to contact and the client’s responses. Additionally, there may be a need for more formal documentation of client meetings to ensure compliance with regulations.”
The role of technology in compliance
“Technology has been crucial in aiding Consumer Duty compliance, enabling firms to evidence the value they deliver to clients. It has been particularly important for firms in the lead up to the 31 July Consumer Duty annual board report deadline. These reports – in which firms are required to demonstrate they are complying with the regulation and delivering good outcomes for clients – have led to an increasing emphasis on CRM systems for capturing and using data within the advice journey. With firms expected to identify issues and areas for improvement, they are required to consolidate large amounts of data, likely turning to their data warehouses as the only place to get a holistic view of this information.
“As wealth managers look to evolve their Consumer Duty compliance and deliver long-term value to clients, it is important that they regularly assess their progress, using means such as the annual mandatory board reports to establish what they could be doing to better serve their clients. In addition to this, they should speak to their clients to determine the level of engagement they desire and provide options in the preferred format.
“Wealth managers should also look to leverage technology for compliance with Consumer Duty. For example, technology can allow firms to enhance their client portal, enabling clients to use self-service features without needing to speak to an adviser, while providing advisers with access to a 360 view of their clients and their portfolios.
“Additionally, firms should evaluate the integration of their CRM systems to support clients more effectively. Improved CRM integration would enable wealth managers to enter data into a single system, creating a more streamlined experience for clients.”
The outlook for closed products
“As we approach Wednesday’s deadline for the implementation of Consumer Duty for closed products and services, firms should now have a view of their clients with closed products – and should have developed a strategy to ensure that these are assessed, and that clients are receiving fair value.
“Looking ahead, wealth managers will need to focus on putting these strategies into action. In some cases, this may involve re-engaging with the client, and this might require recruiting additional staff to support with ongoing advice reviews.
