Recent interactions between the Financial Conduct Authority and various firms across the sector confirm that Consumer Duty is at the forefront of its mind.
For financial advisers, there has been a lot of focus on the price and value outcome, with the regulator indicating at least as far back as December 2020 that it has concerns about the lack of competition in the space leading to poor value for money.
The other outcome I have been considering in the context of advice firms is consumer understanding, specifically the extent to which clients who receive holistic advice fully understand the service they are getting and, therefore, the value of that service.
You can’t assume clients understand the service just because something doesn’t happen
There are two statements often proudly made by successful advisers: “even when markets are very volatile, we don’t get a lot of calls from clients expressing concern” and “we have never really had a material complaint about the service we offer”.
Both are seen as strong indicators a firm is doing a great job and that their clients are happy with (and, most importantly, understand) the service being provided and the value it gives.
However, there is a risk the above would not be deemed to be sufficient evidence that clients fully understand the service they are getting. You can’t assume clients understand the service just because something doesn’t happen.
The FCA may be looking for firms to be more proactive in demonstrating the consumer understanding outcome is being met.
Firms should be looking for feedback from clients that they fully understand the benefits of the service they are receiving
I have taken a look back at the portfolio letter issued by the FCA on “consumer investments” in January 2023, expecting to see something along the above lines in it.
The consumer understanding section of the letter places a lot of focus on how firms should deal with liabilities, complaints and redress, but there are also some indications of what the FCA could expect in terms of ensuring clients understand the products and services being provided, mainly about providing the right type of communications and information.
I would suggest firms looking to really “nail” the Consumer Duty should also be looking for evidence and feedback from their clients that they fully understand all the benefits of the holistic advice and planning service they are receiving.
I often consider these issues in the context of the service I receive from my own adviser, who at each review uses a red, amber, green system to highlight where we are against 10 key financial planning priorities derived from our agreed long-term “life objectives”.
I have been “educated” to understand that the real value in the service I receive is in the overall long-term plan and strategy
This quickly and easily visually identifies where we are (or are not) on track and where further action may need to be taken. It is certainly a lot simpler than the type of information I remember receiving at the start of my journey as a financial planning client!
And I never call my adviser when the markets go up and down. Indeed, I hardly look at my investments in between reviews. I have been “educated” to understand that the real value in the service I receive is in the overall long-term plan and strategy.
There will inevitably be bumps in the road as we go along but they are nothing to worry about provided everything is on track and we have put in place all the measures needed to give us the best chance of achieving our objectives.
Where firms have been implementing similar measures to enhance their clients’ understanding of their services, they should also consider how they can seek to confirm the measures are indeed doing that.
Not only will this provide useful feedback for the firm as it continues to develop its services for clients, it will also help to clearly demonstrate the consumer understanding outcome is being met.
Alan Hughes is a partner at Foot Anstey law firm
