Consumer Duty landed two years ago this summer, and its impact is now becoming clear, both in the evolution of culture and conduct at advice firms and in the way the FCA is using the regulation as a bedrock for future change. Chris Jones, Financial Services Director, Dynamic Planner, provides his expert insights specifically on price and value.
In this series, we’re looking back to assess how far we’ve come since implementation, and forwards at what might come next. We’re taking the four outcomes one by one – with the caveat that the regulator wants them to be considered holistically and that, in practice, there is significant overlap.
Starting simple
This outcome of Consumer Duty was an area of immediate focus for firms in the run up to and after implementation. That makes sense. Of the four outcomes, it’s the most readily graspable, measurable and demonstrable. ‘If I used to cost 50 basis points and now I cost 40, that’s got to be good news for customers,’ the logic goes.
In that vein, with the Duty making firms responsible for the end customer up and down the value chain, we’ve seen firms choosing to outsource more, selecting outsourced solutions that appear lower cost, and applying commercial pressure on manufacturers to reduce costs.
Provided those changes are suitable for the customer, that’s all to the good. But beyond a certain point there’s a limit to how much firms can keep shaving off five or ten bps. And of the four outcomes, ‘price’ is only a half! This outcome also includes ‘value’, and nobody would value a ten-bps saving for something that let them down, wasn’t a great experience or just wasn’t their preference. Low price does not absolve you from products and services that don’t meet client’s needs, which they don’t understand, or throughout whose lifetimes they don’t receive support.
Firms are now recognising this, detaching their assessment of value from the investment proposition alone and instead looking at the overall service they provide to the customer. Value-added aspects of the financial planning process, such as cashflow, are becoming increasingly central to firms’ offerings.
Improved consistency
Another significant shift – one that was long overdue – has been towards better understanding, articulating, implementing and adhering to consistent fee structures.
That doesn’t mean firms can no longer charge different fees for different services or client needs, but it does mean a marked reduction in firms charging different fees to clients in the same circumstances for no clear reason.
Not only has this led to more consistent prices and propositions, but to a more consistent delivery of value and a greater focus on customer needs, as firms have had to engage with how their service models work for different people in different circumstances.
Clearer fee structures
Relatedly, advisers have become much more precise about the services they perform and how they charge for them.
A notable behaviour change is that firms no longer start by considering what to charge their new clients – the approach that led to the inconsistent fee structures of the past. Instead, firms begin by defining the ongoing service proposition for existing clients, determining what’s included in that proposition and what incurs a charge. Only then do they apply this logic to new clients.
In general, existing clients are less likely to be charged for ISA top-ups or fund switches, but a new piece of advice will incur a fee, though often with a discount for those receiving ongoing advice. Advisers have become more inclined to charge for pension top-ups due to the greater complexity and potential risks involved.
Intended and unintended consequences
Together, all of this has contributed to the ongoing professionalisation of the industry. In the post-Retail Distribution Review world, there were still advisers thinking, ‘I used to make X in commission. What can I charge now to make sure I still make that, and what can I say I deliver to justify that fee?’
Today, we instead have a focus on the customer and on the quality of service, as the Duty intended: ‘What do I offer that the client really values?’ ‘What do I do that the client isn’t even really aware of?’ ‘What should I be doing for the client that I wasn’t doing before?’
Of course, this hasn’t come without some challenges – a notable one being the widening of the advice gap. As firms have concentrated on defining their propositions and delivering them for every client, some have found it necessary to offboard lower-value clients or introduce minimum investment thresholds.
However, this immediate response to Consumer Duty is now giving way to more imaginative solutions. Existing firms are looking again at what they can provide at lower fee tiers, while new firms are springing up to fill the gap with offerings such as lighter-touch app-first services for lower-value clients. Targeted support and potentially simplified advice are on their way to provide alternatives across the wealth spectrum.
And overall, the work and thinking that has taken place over the last two years on Price and Value have been beneficial. As the regulation beds in, we can expect to see significantly fewer advice businesses struggling to make money and significantly fewer clients getting worse deals than their peers. Consumer Duty is a framework for change and, as such, its benefits are not immediate, but the efforts look set to pay off.
If you wanted to read Chris’s first instalment of Consumer Duty two years on, then you can find this on our website: https://ifamagazine.com/consumer-duty-two-years-on-chris-jones-financial-services-director-dynamic-planner-provides-his-insights/.
About Chris Jones
Chris Jones is Financial Services Director at Dynamic Planner. He is responsible for Dynamic Planner’s Investment proposition and ensuring that users are able to match people to suitable solutions in the Dynamic Planner system. He leads Dynamic Planner’s 14-strong team of analysts and qualified investment professionals. He has more than 30 years’ industry experience and as both a Chartered and Certified Financial Planner, brings a key financial planning and client perspective to the business.
Chris Jones, Financial Services Director at Dynamic Planner.
