The consumer duty's price and value outcome is a problem area for advisers that involves a number of difficult decisions about products and services, according to consultants Claire Wallace and Bradley Northrop.
The assessment requires firms to consider not just their own fees but information from other parties in the distribution chain, before showing why they believe their products and services offer value.
Wallace and Northrop, directors at Alpha Financial Markets Consulting, say this could lead to practical challenges for firms.
In a Q&A with FTAdviser In Focus they explain the impact of the consumer duty on advisers overall, and give some advice on how firms can tackle the potential challenges along the way.
FTA: It is only a couple of months until the consumer duty comes into effect. If you were an adviser, what would be on your checklist now?
CW & BN: The extent of the effort required to deliver various items will depend on the advice firm and the type of clients they service.
Firms operating in higher-risk areas may benefit from having more checkpoints in the client journey to ensure the customer has fully understood the risk they are undertaking. But these would be on my checklist:
- Implement staff training and education to ensure all staff members know about the duty and are aware of their responsibilities.
- Update MI reporting – enhance management information dashboards and processes to ensure information can be collected and effectively reported across the four outcomes across your organisation.
- Update client-facing communications (for example, suitability reports and terms of engagement) to ensure content is clear and understandable to the customers.
- Enhance client support by clearly signposting methods of contact, evidencing turn-around times for processes and mechanisms to prevent client fraud, and reviewing your vulnerable customers policy;
- Complete remaining fair-value assessments.
- Document agreed communication channels with product manufacturers and associated procedures.
FTA: What can advisers expect from the regulator in the first year of implementation (for new products), from July 31?
CW & BN: It is clear from the finalised rules and guidance, and from recent communications, that the Financial Conduct Authority expects firms to demonstrate how they are achieving good outcomes.
We expect the FCA to enforce against the duty in a way that reflects the overall risk of harm to customers. If firms are struggling to meet all requirements of the duty in time for the deadline, they should prioritise addressing those areas that pose the highest risk of consumer harm.
They must also ensure they have an adequately resourced and clear plan to deliver any outstanding items in an appropriate timeframe post-July 2023.
The FCA has also been clear that it expects firms to take a data-led approach to monitoring outcomes and be able to support conclusions with appropriate evidence.
Ensuring an appropriate MI strategy is in place and supported by effective dashboards and escalation processes will be essential to demonstrate that good outcomes are being achieved.
FTA: What are the most likely problem areas?
CW & BN: The price and value outcome has proved to be a difficult outcome to interpret. It requires firms to gather and consider information from other parties in the distribution chain and show how they have satisfied themselves that products and services offer value.
As part of their value assessment, firms must demonstrate how the inputs of their assessment roll up to a final conclusion. Advice firms will need to define what value looks like for a customer based on defined criteria and metrics.
