July 31st 2023 is a date etched in the mind of anyone working in financial services in the UK. Now, six months on from the date the Consumer Duty finally came into force, Chris Jones(pictured), Chief Proposition Officer, Dynamic Planner, shares his assessment not only about where we are today but also on what has been achieved and where more attention might be needed.
Tomorrow will be the six month anniversary from the Consumer Duty deadline. I’d argue that this is an excellent time for all of us in the financial services profession to reflect on some critical questions. Top of my list is to consider where do we find ourselves today? What has been achieved and where is more attention needed?
Research by Dynamic Planner, conducted in the autumn, found that firms feel they’re getting it right. Although implementation was a challenge, with regulation identified by many as the number one headache in 2023, the vast majority are confident they’re meeting requirements.
A mindset shift
However, there is a danger of falling into the trap of seeing it as a ‘one and done’– a task that had to be done by July, and now it’s out of the way you can get back to normal. Instead, I’d argue this regulation is a mindset shift, requiring advice firms to be consumer focused in everything they do. For some firms, of course, this has long been bread and butter. Others have embraced this opportunity to get it right. For yet others, some boxes might have been ticked but now the real work has to start.
Although advice professionals are confident about all four outcomes according to the Dynamic Planner research, firms have understandably tended to concentrate on the aspects they understand the best – which are also those most familiar from previous rounds of regulation.
Price and value
That means many have gone deep on price and value. The idea of ‘picking the best one’ is deeply embedded in the industry, so firms have revisited product recommendations, renegotiated their platform deals or shopped around for better options. Attention to service and understanding has sometimes been patchier.
The focus on price also means in some cases a ‘cheapest is best’ mentality has crept in. My worry with this is what happens down the line. Consumer Duty is about client outcomes, and a client can only achieve a good outcome if the product or service is provided for as long as they need it. Think of the cheap airline that collapses while you’re on holiday – sure, you got a great deal, but now you’re stuck in Marbella when you’re due back at work in the morning.
Many of the biggest consumer harms in our industry have resulted from someone trying to do too much for too little, and eventually coming unstuck. That means you should only offer something you can afford to provide – for the next one or two years, yes, but also for the next 20.
Time to break away from historical thinking
Another perception issue is the reliance on previous regulatory boundaries. Consumer Duty is a principle, and as a result it sits above and outranks other regulation – but this isn’t always understood.
For example, I was talking recently to a firm with two clear client groups: first, its main client base, and second, a group of clients it receives through referrals from a different part of the country. This latter group has simpler needs, and the firm wanted to charge different fees for a different service as a result, but its compliance department said they had to charge everyone the same because that was TCF.
But under Consumer Duty they were doing exactly the right thing: they had identified two groups with different needs and wanted to price both groups fairly. The obstacle wasn’t the regulation but the embedded historical thinking.
Of course, many firms have understood this aspect of the regulation. By the implementation deadline, 20% of the firms using Dynamic Planner had segmented their clients into target markets, enabling them to take advantage of the opportunity to treat different types of clients in different ways and to respond to different needs, rather than putting everyone in the same box for the same fee.
This approach is likely to be beneficial for most firms. Sure, some may only service one very niche group. But most, if they are honest with themselves, will find that if they’re treating everyone the same, their service models, communications and fees are more appropriate for some clients than for others. And in the end the regulator will pick that up.
Be careful what you wish for
One final point: I’ve heard from some people that there’s no point really embedding the Duty when it’s bound to be replaced by something else in the future. It’s true that the industry has become very used to dealing with regulatory change and a certain amount of cynicism is understandable – but be careful what you wish for.
Consumer Duty, to me, is a sign that the FCA is listening. It is more client-focused, more adviser-focused, and more reflective of the realities of the adviser-client relationship and the firm-provider relationship than anything we’ve seen in the past. Unlike the equivalent regulation in many other regimes around the world, it recognises and supports the importance of the advice industry. It’s therefore in all our interests to make it work.