TCS (Tenet Compliance Services), a leading independent compliance support provider to financial advisers, releases the findings of a Consumer Duty survey which assessed the confidence levels of authorised advisers meeting the Board reports deadline of 31 July 2024 set by the FCA.
Of the 146 respondents:
· 34% – confident they would be able to evidence Consumer Duty
· 18% – Fairly confident
· 38% – Not confident/unsure
· 10% – Did not know
The results indicate that nearly half of respondents felt that they would not be confident that their Board report would pass muster with the FCA.
The legislation will be a year old on 31 July and advisers should be near ready for their first Consumer Duty annual assessment as well as the likely prospect that the regulator will be asking for a progress report in the ensuing months.
Marjolaine Quirke Director of Client Delivery at TCS highlights five key mistakes to avoid as advisers prepare for the impending headline:
“Complacency – consumer duty is about show don’t tell and firms need to demonstrate they are meeting the requirements of the Consumer Duty. It is important advisers realise there is a lot of work required to meet the Duty and Board report deadline, nor should they assume that having no recorded complaints and ‘breaking no rules’ is sufficient. They need to evidence how they are meeting each of the four outcomes, including demonstrating fair value and consumer understanding, which a lot of firms find challenging.”
“Taking a narrow approach to vulnerability– the FCA has highlighted that 49% of portfolio managers and 69% of stockbrokers believed they do not have any vulnerable clients. It’s highly likely this isn’t accurate and under the new Consumer Duty legislation, this sort of narrow approach to identifying vulnerable clients will be viewed in a dim light.
“It is important to remember wealth does not insulate from vulnerability, and many vulnerabilities may not be visible or initially obvious. Issues such as income shocks from inflation, illnesses, bereavement, coercion and pressure from family members can all be circumstances that can lead to a client becoming vulnerable. Advisers need to be alert to different causes and types of vulnerability.”
“Not delivering services or demonstrating fair value – The FCA has requested seven years’ worth of ongoing services data from the twenty largest advice firms, which gives a strong indication on the level of detail expected going forward for Consumer Duty. Advisers need to consider whether they would have the data to hand and be clear about their on-going service proposition.
“Advisers should see the Consumer Duty as a great opportunity to evaluate their ongoing review services with price and value assessments, as well as identify disengagement data and refund policies to make sure the ongoing services they provide remain valuable to their clients and can be proven to be so”.
“Insufficient data and monitoring to evidence good outcomes – insufficient data is a problem but the gathering of evidence shouldn’t just be a tick box exercise – it needs to ultimately provide actionable outcomes.
“Advisers need to determine what good looks like and consider the optimal outcomes for each segment of your client base. They should monitor and analyse what they are delivering to each client to demonstrate the value being provided. We always advise using a combination of file reviews, client feedback and complaint analysis to track performance effectively. Doing this on a regular basis will ensure the necessary thoroughness.’’
“Unclear governance and reporting – Consumer Duty should be viewed as a golden opportunity for firms to showcase the great work they deliver and how a continuous improvement process is being adopted and embedded throughout the firm’s processes, culture and values.
“For many firms the board report provides an ideal medium for senior management to evaluate if the firm is on track with the Consumer Duty. Honesty is the best policy, so avoid publishing a ‘sea of green’. Non-optimum outcomes aren’t necessarily bad, and these can be reframed to prove there’s a process in place to work towards achieving the best possible outcomes.”
Consumer Duty has been viewed by many as negative and a strain on resources but it is here to stay and there is no doubt that the FCA will continue to enforce it. Advisers who find it difficult to grasp need a shift in mindset, to see it as beneficial tool not just for customers but in developing their own business. Once embraced, it is then about pre-preparedness and having processes in place to demonstrate proof points.
